Correlation Between Chipotle Mexican and American International

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

Diversification Opportunities for Chipotle Mexican and American International

0.66

Correlation Coefficient

Chipotle Mexican  American International

Poor diversification

The 3 months correlation between Chipotle and American is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Chipotle Mexican Grill and American International Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American International 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 American International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American International has no effect on the direction of Chipotle Mexican i.e., Chipotle Mexican and American International go up and down completely randomly.

Pair Corralation between Chipotle Mexican and American International

Assuming the 90 days trading horizon Chipotle Mexican Grill is expected to generate 2.14 times more return on investment than American International. However, Chipotle Mexican is 2.14 times more volatile than American International Group. It trades about 0.1 of its potential returns per unit of risk. American International Group is currently generating about 0.09 per unit of risk. If you would invest  109,262  in Chipotle Mexican Grill on October 5, 2024 and sell it today you would earn a total of  14,238  from holding Chipotle Mexican Grill or generate 13.03% return on investment over 90 days.

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

Chipotle Mexican Grill  vs.  American International Group

Chipotle Mexican Grill

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chipotle Mexican Grill are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Chipotle Mexican showed solid returns over the last few months and may actually be approaching a breakup point.

American International

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American International Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, American International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Chipotle Mexican and American International

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

The idea behind Chipotle Mexican Grill and American International 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.