Correlation Between Chipotle Mexican and McDonalds
Can any of the company-specific risk be diversified away by investing in both Chipotle Mexican and McDonalds 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 McDonalds 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 McDonalds, you can compare the effects of market volatilities on Chipotle Mexican and McDonalds 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 McDonalds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chipotle Mexican and McDonalds.
Diversification Opportunities for Chipotle Mexican and McDonalds
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Chipotle and McDonalds is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Chipotle Mexican Grill and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds 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 McDonalds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McDonalds has no effect on the direction of Chipotle Mexican i.e., Chipotle Mexican and McDonalds go up and down completely randomly.
Pair Corralation between Chipotle Mexican and McDonalds
Assuming the 90 days trading horizon Chipotle Mexican Grill is expected to generate 1.9 times more return on investment than McDonalds. However, Chipotle Mexican is 1.9 times more volatile than McDonalds. It trades about 0.25 of its potential returns per unit of risk. McDonalds is currently generating about 0.15 per unit of risk. If you would invest 112,898 in Chipotle Mexican Grill on August 31, 2024 and sell it today you would earn a total of 15,824 from holding Chipotle Mexican Grill or generate 14.02% 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. McDonalds
Performance |
| Timeline |
| Chipotle Mexican Grill |
| McDonalds |
Chipotle Mexican and McDonalds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chipotle Mexican and McDonalds
The main advantage of trading using opposite Chipotle Mexican and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chipotle Mexican position performs unexpectedly, McDonalds 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 McDonalds will offset losses from the drop in McDonalds' long position.| Chipotle Mexican vs. DXC Technology | Chipotle Mexican vs. Micron Technology | Chipotle Mexican vs. Deutsche Bank Aktiengesellschaft | Chipotle Mexican vs. First Republic Bank |
| McDonalds vs. Deutsche Bank Aktiengesellschaft | McDonalds vs. Verizon Communications | McDonalds vs. Monster Beverage Corp | McDonalds vs. Southwest Airlines |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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