Correlation Between BT Brands and Chipotle Mexican

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

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

Diversification Opportunities for BT Brands and Chipotle Mexican

-0.22

Correlation Coefficient

BT Brands  Chipotle Mexican

Very good diversification

The 3 months correlation between BTBDW and Chipotle is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding BT Brands Warrant 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 BT Brands 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 BT Brands Warrant 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 BT Brands i.e., BT Brands and Chipotle Mexican go up and down completely randomly.

Pair Corralation between BT Brands and Chipotle Mexican

Assuming the 90 days horizon BT Brands Warrant is expected to generate 31.88 times more return on investment than Chipotle Mexican. However, BT Brands is 31.88 times more volatile than Chipotle Mexican Grill. It trades about 0.08 of its potential returns per unit of risk. Chipotle Mexican Grill is currently generating about -0.39 per unit of risk. If you would invest  7.93  in BT Brands Warrant on October 10, 2024 and sell it today you would lose (2.64) from holding BT Brands Warrant or give up 33.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	55.0%
Values	Daily Returns

BT Brands Warrant  vs.  Chipotle Mexican Grill

BT Brands Warrant

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BT Brands Warrant are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental indicators, BT Brands showed solid returns over the last few months and may actually be approaching a breakup point.

Chipotle Mexican Grill

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chipotle Mexican Grill has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, Chipotle Mexican is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with BT Brands and Chipotle Mexican

The main advantage of trading using opposite BT Brands and Chipotle Mexican positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BT Brands 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 BT Brands Warrant 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.