Correlation Between CVS Health and Chipotle Mexican

Can any of the company-specific risk be diversified away by investing in both CVS Health and Chipotle Mexican 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 CVS Health and Chipotle Mexican into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CVS Health and Chipotle Mexican Grill, you can compare the effects of market volatilities on CVS Health and Chipotle Mexican 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 CVS Health with a short position of Chipotle Mexican. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS Health and Chipotle Mexican.

Diversification Opportunities for CVS Health and Chipotle Mexican

-0.15

Correlation Coefficient

CVS Health  Chipotle Mexican

Good diversification

The 3 months correlation between CVS and Chipotle is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and Chipotle Mexican Grill in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chipotle Mexican Grill and CVS Health 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 CVS Health are associated (or correlated) with Chipotle Mexican. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chipotle Mexican Grill has no effect on the direction of CVS Health i.e., CVS Health and Chipotle Mexican go up and down completely randomly.

Pair Corralation between CVS Health and Chipotle Mexican

Assuming the 90 days trading horizon CVS Health is expected to under-perform the Chipotle Mexican. In addition to that, CVS Health is 1.24 times more volatile than Chipotle Mexican Grill. It trades about -0.09 of its total potential returns per unit of risk. Chipotle Mexican Grill is currently generating about 0.14 per unit of volatility. If you would invest  110,049  in Chipotle Mexican Grill on September 18, 2024 and sell it today you would earn a total of  20,451  from holding Chipotle Mexican Grill or generate 18.58% return on investment over 90 days.

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

CVS Health  vs.  Chipotle Mexican Grill

CVS Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS Health has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Chipotle Mexican Grill

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chipotle Mexican Grill are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Chipotle Mexican showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CVS Health and Chipotle Mexican

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

The idea behind CVS Health and Chipotle Mexican Grill 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.