Correlation Between Chipotle Mexican and RLJ Lodging

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

Diversification Opportunities for Chipotle Mexican and RLJ Lodging

0.79

Correlation Coefficient

Chipotle Mexican  RLJ Lodging

Poor diversification

The 3 months correlation between Chipotle and RLJ is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Chipotle Mexican Grill and RLJ Lodging Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RLJ Lodging Trust 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 RLJ Lodging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RLJ Lodging Trust has no effect on the direction of Chipotle Mexican i.e., Chipotle Mexican and RLJ Lodging go up and down completely randomly.

Pair Corralation between Chipotle Mexican and RLJ Lodging

Considering the 90-day investment horizon Chipotle Mexican Grill is expected to generate 1.11 times more return on investment than RLJ Lodging. However, Chipotle Mexican is 1.11 times more volatile than RLJ Lodging Trust. It trades about 0.07 of its potential returns per unit of risk. RLJ Lodging Trust is currently generating about 0.0 per unit of risk. If you would invest  3,101  in Chipotle Mexican Grill on November 29, 2024 and sell it today you would earn a total of  2,173  from holding Chipotle Mexican Grill or generate 70.07% return on investment over 90 days.

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

Chipotle Mexican Grill  vs.  RLJ Lodging Trust

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 March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

RLJ Lodging Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days RLJ Lodging Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady essential indicators, RLJ Lodging is not utilizing all of its potentials. The recent stock price chaos, may contribute to medium-term losses for the stakeholders.

Pair Trading with Chipotle Mexican and RLJ Lodging

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

The idea behind Chipotle Mexican Grill and RLJ Lodging Trust 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..