Correlation Between Applied Materials and Chipotle Mexican

Can any of the company-specific risk be diversified away by investing in both Applied Materials and Chipotle Mexican 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 Applied Materials and Chipotle Mexican into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Applied Materials and Chipotle Mexican Grill, you can compare the effects of market volatilities on Applied Materials and Chipotle Mexican 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 Applied Materials with a short position of Chipotle Mexican. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Materials and Chipotle Mexican.

Diversification Opportunities for Applied Materials and Chipotle Mexican

0.57

Correlation Coefficient

Applied Materials  Chipotle Mexican

Very weak diversification

The 3 months correlation between Applied and Chipotle is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Chipotle Mexican Grill in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chipotle Mexican Grill and Applied Materials 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 Applied Materials are associated (or correlated) with Chipotle Mexican. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chipotle Mexican Grill has no effect on the direction of Applied Materials i.e., Applied Materials and Chipotle Mexican go up and down completely randomly.

Pair Corralation between Applied Materials and Chipotle Mexican

Assuming the 90 days trading horizon Applied Materials is expected to generate 1.11 times more return on investment than Chipotle Mexican. However, Applied Materials is 1.11 times more volatile than Chipotle Mexican Grill. It trades about -0.05 of its potential returns per unit of risk. Chipotle Mexican Grill is currently generating about -0.18 per unit of risk. If you would invest  339,622  in Applied Materials on December 25, 2024 and sell it today you would lose (27,122) from holding Applied Materials or give up 7.99% of portfolio value over 90 days.

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

Applied Materials  vs.  Chipotle Mexican Grill

Applied Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Applied Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Chipotle Mexican Grill

Risk-Adjusted Performance

Very Weak

Over the last 90 days Chipotle Mexican Grill has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Applied Materials and Chipotle Mexican

The main advantage of trading using opposite Applied Materials and Chipotle Mexican positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials position performs unexpectedly, Chipotle Mexican 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 Chipotle Mexican will offset losses from the drop in Chipotle Mexican's long position.

The idea behind Applied Materials and Chipotle Mexican Grill 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.