Correlation Between Chipotle Mexican and First Watch

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

Diversification Opportunities for Chipotle Mexican and First Watch

0.32

Correlation Coefficient

Chipotle Mexican  First Watch

Weak diversification

The 3 months correlation between Chipotle and First is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Chipotle Mexican Grill and First Watch Restaurant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Watch Restaurant 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 First Watch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Watch Restaurant has no effect on the direction of Chipotle Mexican i.e., Chipotle Mexican and First Watch go up and down completely randomly.

Pair Corralation between Chipotle Mexican and First Watch

Considering the 90-day investment horizon Chipotle Mexican Grill is expected to generate 0.72 times more return on investment than First Watch. However, Chipotle Mexican Grill is 1.39 times less risky than First Watch. It trades about 0.07 of its potential returns per unit of risk. First Watch Restaurant is currently generating about 0.03 per unit of risk. If you would invest  3,195  in Chipotle Mexican Grill on October 13, 2024 and sell it today you would earn a total of  2,455  from holding Chipotle Mexican Grill or generate 76.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Chipotle Mexican Grill  vs.  First Watch Restaurant

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. Despite nearly stable primary indicators, Chipotle Mexican is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

First Watch Restaurant

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Watch Restaurant are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, First Watch reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chipotle Mexican and First Watch

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

The idea behind Chipotle Mexican Grill and First Watch Restaurant 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.