Correlation Between Star Diamond and Chipotle Mexican

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

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

Diversification Opportunities for Star Diamond and Chipotle Mexican

-0.4

Correlation Coefficient

Star Diamond  Chipotle Mexican

Very good diversification

The 3 months correlation between Star and Chipotle is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Star Diamond 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 Star Diamond 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 Star Diamond 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 Star Diamond i.e., Star Diamond and Chipotle Mexican go up and down completely randomly.

Pair Corralation between Star Diamond and Chipotle Mexican

Assuming the 90 days horizon Star Diamond is expected to generate 4.03 times more return on investment than Chipotle Mexican. However, Star Diamond is 4.03 times more volatile than Chipotle Mexican Grill. It trades about -0.03 of its potential returns per unit of risk. Chipotle Mexican Grill is currently generating about -0.22 per unit of risk. If you would invest  2.40  in Star Diamond on November 28, 2024 and sell it today you would lose (0.25) from holding Star Diamond or give up 10.42% of portfolio value over 90 days.

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

Star Diamond  vs.  Chipotle Mexican Grill

Star Diamond

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Star Diamond are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Star Diamond reported solid returns over the last few months and may actually be approaching a breakup point.

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 uncertain performance in the last few months, the Stock's basic 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.

Pair Trading with Star Diamond and Chipotle Mexican

The main advantage of trading using opposite Star Diamond and Chipotle Mexican positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Star Diamond 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 Star Diamond 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.