Correlation Between Chipotle Mexican and RF Acquisition

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

Diversification Opportunities for Chipotle Mexican and RF Acquisition

-0.55

Correlation Coefficient

Chipotle Mexican  RF Acquisition

Excellent diversification

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

Pair Corralation between Chipotle Mexican and RF Acquisition

Considering the 90-day investment horizon Chipotle Mexican is expected to generate 295.1 times less return on investment than RF Acquisition. But when comparing it to its historical volatility, Chipotle Mexican Grill is 111.73 times less risky than RF Acquisition. It trades about 0.07 of its potential returns per unit of risk. RF Acquisition Corp is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  13.00  in RF Acquisition Corp on December 2, 2024 and sell it today you would earn a total of  12.00  from holding RF Acquisition Corp or generate 92.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	41.62%
Values	Daily Returns

Chipotle Mexican Grill  vs.  RF Acquisition Corp

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 latest weak performance, the Stock's primary indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

RF Acquisition Corp

Risk-Adjusted Performance

Good

Over the last 90 days RF Acquisition Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively uncertain fundamental indicators, RF Acquisition reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chipotle Mexican and RF Acquisition

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

The idea behind Chipotle Mexican Grill and RF Acquisition Corp 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.