Correlation Between Valero Energy and Chipotle Mexican

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

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

Diversification Opportunities for Valero Energy and Chipotle Mexican

0.74

Correlation Coefficient

Valero Energy  Chipotle Mexican

Poor diversification

The 3 months correlation between Valero and Chipotle is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Valero Energy 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 Valero Energy 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 Valero Energy 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 Valero Energy i.e., Valero Energy and Chipotle Mexican go up and down completely randomly.

Pair Corralation between Valero Energy and Chipotle Mexican

Assuming the 90 days trading horizon Valero Energy is expected to generate 2.53 times less return on investment than Chipotle Mexican. But when comparing it to its historical volatility, Valero Energy is 1.33 times less risky than Chipotle Mexican. It trades about 0.06 of its potential returns per unit of risk. Chipotle Mexican Grill is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  112,105  in Chipotle Mexican Grill on September 17, 2024 and sell it today you would earn a total of  17,895  from holding Chipotle Mexican Grill or generate 15.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Valero Energy  vs.  Chipotle Mexican Grill

Valero Energy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Valero Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Valero Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Chipotle Mexican Grill

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chipotle Mexican Grill are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating 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 Valero Energy and Chipotle Mexican

The main advantage of trading using opposite Valero Energy and Chipotle Mexican positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Valero Energy 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 Valero Energy 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.