Correlation Between Chipotle Mexican and RCI Hospitality

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

Diversification Opportunities for Chipotle Mexican and RCI Hospitality

0.87

Correlation Coefficient

Chipotle Mexican  RCI Hospitality

Very poor diversification

The 3 months correlation between Chipotle and RCI is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Chipotle Mexican Grill and RCI Hospitality Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RCI Hospitality Holdings 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 RCI Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RCI Hospitality Holdings has no effect on the direction of Chipotle Mexican i.e., Chipotle Mexican and RCI Hospitality go up and down completely randomly.

Pair Corralation between Chipotle Mexican and RCI Hospitality

Considering the 90-day investment horizon Chipotle Mexican Grill is expected to generate 0.95 times more return on investment than RCI Hospitality. However, Chipotle Mexican Grill is 1.05 times less risky than RCI Hospitality. It trades about -0.19 of its potential returns per unit of risk. RCI Hospitality Holdings is currently generating about -0.19 per unit of risk. If you would invest  6,147  in Chipotle Mexican Grill on December 25, 2024 and sell it today you would lose (1,187) from holding Chipotle Mexican Grill or give up 19.31% of portfolio value over 90 days.

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

Chipotle Mexican Grill  vs.  RCI Hospitality Holdings

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.

RCI Hospitality Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days RCI Hospitality Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Chipotle Mexican and RCI Hospitality

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

The idea behind Chipotle Mexican Grill and RCI Hospitality Holdings 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.