Correlation Between Chipotle Mexican and Potbelly

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

Diversification Opportunities for Chipotle Mexican and Potbelly

0.65

Correlation Coefficient

Chipotle Mexican  Potbelly

Poor diversification

The 3 months correlation between Chipotle and Potbelly is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Chipotle Mexican Grill and Potbelly Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Potbelly 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 Potbelly. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Potbelly has no effect on the direction of Chipotle Mexican i.e., Chipotle Mexican and Potbelly go up and down completely randomly.

Pair Corralation between Chipotle Mexican and Potbelly

Considering the 90-day investment horizon Chipotle Mexican Grill is expected to under-perform the Potbelly. But the stock apears to be less risky and, when comparing its historical volatility, Chipotle Mexican Grill is 1.52 times less risky than Potbelly. The stock trades about -0.32 of its potential returns per unit of risk. The Potbelly Co is currently generating about -0.19 of returns per unit of risk over similar time horizon. If you would invest  1,018  in Potbelly Co on October 6, 2024 and sell it today you would lose (81.00) from holding Potbelly Co or give up 7.96% of portfolio value over 90 days.

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

Chipotle Mexican Grill  vs.  Potbelly Co

Chipotle Mexican Grill

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chipotle Mexican Grill are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, Chipotle Mexican may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Potbelly

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Potbelly Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Potbelly sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chipotle Mexican and Potbelly

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

The idea behind Chipotle Mexican Grill and Potbelly Co 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.