Correlation Between Chipotle Mexican and Papa Johns

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

Diversification Opportunities for Chipotle Mexican and Papa Johns

-0.55

Correlation Coefficient

Chipotle Mexican  Papa Johns

Excellent diversification

The 3 months correlation between Chipotle and Papa is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Chipotle Mexican Grill and Papa Johns International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Papa Johns 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 Papa Johns. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Papa Johns International has no effect on the direction of Chipotle Mexican i.e., Chipotle Mexican and Papa Johns go up and down completely randomly.

Pair Corralation between Chipotle Mexican and Papa Johns

Considering the 90-day investment horizon Chipotle Mexican Grill is expected to under-perform the Papa Johns. But the stock apears to be less risky and, when comparing its historical volatility, Chipotle Mexican Grill is 2.31 times less risky than Papa Johns. The stock trades about -0.16 of its potential returns per unit of risk. The Papa Johns International is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  3,961  in Papa Johns International on December 28, 2024 and sell it today you would earn a total of  23.00  from holding Papa Johns International or generate 0.58% return on investment over 90 days.

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

Chipotle Mexican Grill  vs.  Papa Johns International

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. Despite weak performance in the last few months, the Stock's primary indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Papa Johns International

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Papa Johns International are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Papa Johns 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 Papa Johns

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

The idea behind Chipotle Mexican Grill and Papa Johns International 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.