Correlation Between Chipotle Mexican and Micron Technology

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

Diversification Opportunities for Chipotle Mexican and Micron Technology

-0.26

Correlation Coefficient

Chipotle Mexican  Micron Technology

Very good diversification

The 3 months correlation between Chipotle and Micron is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Chipotle Mexican Grill and Micron Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micron Technology 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 Micron Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Micron Technology has no effect on the direction of Chipotle Mexican i.e., Chipotle Mexican and Micron Technology go up and down completely randomly.

Pair Corralation between Chipotle Mexican and Micron Technology

Assuming the 90 days trading horizon Chipotle Mexican Grill is expected to under-perform the Micron Technology. In addition to that, Chipotle Mexican is 1.68 times more volatile than Micron Technology. It trades about -0.01 of its total potential returns per unit of risk. Micron Technology is currently generating about 0.06 per unit of volatility. If you would invest  116,075  in Micron Technology on October 26, 2024 and sell it today you would earn a total of  92,925  from holding Micron Technology or generate 80.06% return on investment over 90 days.

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

Chipotle Mexican Grill  vs.  Micron Technology

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. In spite of fairly strong technical and fundamental indicators, Chipotle Mexican is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Micron Technology

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Micron Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, Micron Technology 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 Micron Technology

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

The idea behind Chipotle Mexican Grill and Micron Technology 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.