Correlation Between Chipotle Mexican and Capital One

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

Diversification Opportunities for Chipotle Mexican and Capital One

0.33

Correlation Coefficient

Chipotle Mexican  Capital One

Weak diversification

The 3 months correlation between Chipotle and Capital is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Chipotle Mexican Grill and Capital One Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital One Financial 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 Capital One. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital One Financial has no effect on the direction of Chipotle Mexican i.e., Chipotle Mexican and Capital One go up and down completely randomly.

Pair Corralation between Chipotle Mexican and Capital One

Assuming the 90 days trading horizon Chipotle Mexican Grill is expected to under-perform the Capital One. But the stock apears to be less risky and, when comparing its historical volatility, Chipotle Mexican Grill is 1.14 times less risky than Capital One. The stock trades about -0.2 of its potential returns per unit of risk. The Capital One Financial is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  378,312  in Capital One Financial on December 22, 2024 and sell it today you would lose (27,410) from holding Capital One Financial or give up 7.25% of portfolio value over 90 days.

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

Chipotle Mexican Grill  vs.  Capital One Financial

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.

Capital One Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Capital One Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Capital One is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Chipotle Mexican and Capital One

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

The idea behind Chipotle Mexican Grill and Capital One Financial 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.