Correlation Between Chipotle Mexican and COMPASS GROUP

Can any of the company-specific risk be diversified away by investing in both Chipotle Mexican and COMPASS GROUP 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 COMPASS GROUP 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 COMPASS GROUP, you can compare the effects of market volatilities on Chipotle Mexican and COMPASS GROUP 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 COMPASS GROUP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chipotle Mexican and COMPASS GROUP.

Diversification Opportunities for Chipotle Mexican and COMPASS GROUP

0.25

Correlation Coefficient

Chipotle Mexican  COMPASS GROUP

Modest diversification

The 3 months correlation between Chipotle and COMPASS is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Chipotle Mexican Grill and COMPASS GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COMPASS GROUP 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 COMPASS GROUP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COMPASS GROUP has no effect on the direction of Chipotle Mexican i.e., Chipotle Mexican and COMPASS GROUP go up and down completely randomly.

Pair Corralation between Chipotle Mexican and COMPASS GROUP

Assuming the 90 days horizon Chipotle Mexican Grill is expected to under-perform the COMPASS GROUP. In addition to that, Chipotle Mexican is 1.02 times more volatile than COMPASS GROUP. It trades about -0.18 of its total potential returns per unit of risk. COMPASS GROUP is currently generating about 0.02 per unit of volatility. If you would invest  3,021  in COMPASS GROUP on December 30, 2024 and sell it today you would earn a total of  39.00  from holding COMPASS GROUP or generate 1.29% return on investment over 90 days.

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

Chipotle Mexican Grill  vs.  COMPASS GROUP

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

COMPASS GROUP

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in COMPASS GROUP are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, COMPASS GROUP is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Chipotle Mexican and COMPASS GROUP

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

The idea behind Chipotle Mexican Grill and COMPASS GROUP 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.