Correlation Between GMS and Shake Shack

Can any of the company-specific risk be diversified away by investing in both GMS and Shake Shack at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining GMS and Shake Shack into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between GMS Inc and Shake Shack, you can compare the effects of market volatilities on GMS and Shake Shack and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in GMS with a short position of Shake Shack. Check out your portfolio center. Please also check ongoing floating volatility patterns of GMS and Shake Shack.

Diversification Opportunities for GMS and Shake Shack

0.79

Correlation Coefficient

GMS  Shake Shack

Poor diversification

The 3 months correlation between GMS and Shake is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding GMS Inc and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and GMS is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on GMS Inc are associated (or correlated) with Shake Shack. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shake Shack has no effect on the direction of GMS i.e., GMS and Shake Shack go up and down completely randomly.

Pair Corralation between GMS and Shake Shack

Considering the 90-day investment horizon GMS Inc is expected to under-perform the Shake Shack. But the stock apears to be less risky and, when comparing its historical volatility, GMS Inc is 1.48 times less risky than Shake Shack. The stock trades about -0.2 of its potential returns per unit of risk. The Shake Shack is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  10,238  in Shake Shack on January 26, 2024 and sell it today you would lose (284.00) from holding Shake Shack or give up 2.77% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

GMS Inc  vs.  Shake Shack

GMS Inc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GMS Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak primary indicators, GMS may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Shake Shack

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Shake Shack disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GMS and Shake Shack

The main advantage of trading using opposite GMS and Shake Shack positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GMS position performs unexpectedly, Shake Shack can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Shake Shack will offset losses from the drop in Shake Shack's long position.

The idea behind GMS Inc and Shake Shack pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.