Correlation Between Chipotle Mexican and Starbucks

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

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

Diversification Opportunities for Chipotle Mexican and Starbucks

-0.56

Correlation Coefficient

Chipotle Mexican  Starbucks

Excellent diversification

The 3 months correlation between Chipotle and Starbucks is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Chipotle Mexican Grill and Starbucks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks and Chipotle Mexican 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 Chipotle Mexican Grill are associated (or correlated) with Starbucks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Starbucks has no effect on the direction of Chipotle Mexican i.e., Chipotle Mexican and Starbucks go up and down completely randomly.

Pair Corralation between Chipotle Mexican and Starbucks

Assuming the 90 days horizon Chipotle Mexican Grill is expected to under-perform the Starbucks. But the stock apears to be less risky and, when comparing its historical volatility, Chipotle Mexican Grill is 1.04 times less risky than Starbucks. The stock trades about -0.2 of its potential returns per unit of risk. The Starbucks is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  9,508  in Starbucks on November 28, 2024 and sell it today you would earn a total of  1,394  from holding Starbucks or generate 14.66% return on investment over 90 days.

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

Chipotle Mexican Grill  vs.  Starbucks

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. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Starbucks

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Starbucks are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Starbucks reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chipotle Mexican and Starbucks

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

The idea behind Chipotle Mexican Grill and Starbucks 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.