Correlation Between Chipotle Mexican and Avis Budget
Can any of the company-specific risk be diversified away by investing in both Chipotle Mexican and Avis Budget 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 Avis Budget 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 Avis Budget Group, you can compare the effects of market volatilities on Chipotle Mexican and Avis Budget 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 Avis Budget. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chipotle Mexican and Avis Budget.
Diversification Opportunities for Chipotle Mexican and Avis Budget
0.37 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Chipotle and Avis is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Chipotle Mexican Grill and Avis Budget Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avis Budget Group 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 Avis Budget. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avis Budget Group has no effect on the direction of Chipotle Mexican i.e., Chipotle Mexican and Avis Budget go up and down completely randomly.
Pair Corralation between Chipotle Mexican and Avis Budget
Assuming the 90 days trading horizon Chipotle Mexican Grill is expected to under-perform the Avis Budget. In addition to that, Chipotle Mexican is 2.25 times more volatile than Avis Budget Group. It trades about -0.02 of its total potential returns per unit of risk. Avis Budget Group is currently generating about -0.03 per unit of volatility. If you would invest 302,249 in Avis Budget Group on September 14, 2024 and sell it today you would lose (82,749) from holding Avis Budget Group or give up 27.38% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Chipotle Mexican Grill vs. Avis Budget Group
Performance |
| Timeline |
| Chipotle Mexican Grill |
| Avis Budget Group |
Chipotle Mexican and Avis Budget Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chipotle Mexican and Avis Budget
The main advantage of trading using opposite Chipotle Mexican and Avis Budget positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chipotle Mexican position performs unexpectedly, Avis Budget 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 Avis Budget will offset losses from the drop in Avis Budget's long position.The idea behind Chipotle Mexican Grill and Avis Budget Group 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.| Avis Budget vs. Applied Materials | Avis Budget vs. Grupo Carso SAB | Avis Budget vs. Southwest Airlines | Avis Budget vs. United Airlines Holdings |
Check out your portfolio center.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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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