Correlation Between Direct Line and Chipotle Mexican
Can any of the company-specific risk be diversified away by investing in both Direct Line 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 Direct Line and Chipotle Mexican into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Direct Line Insurance and Chipotle Mexican Grill, you can compare the effects of market volatilities on Direct Line 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 Direct Line with a short position of Chipotle Mexican. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and Chipotle Mexican.
Diversification Opportunities for Direct Line and Chipotle Mexican
0.15 | Correlation Coefficient |
Average diversification
The 3 months correlation between Direct and Chipotle is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance 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 Direct Line 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 Direct Line Insurance 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 Direct Line i.e., Direct Line and Chipotle Mexican go up and down completely randomly.
Pair Corralation between Direct Line and Chipotle Mexican
Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 1.79 times more return on investment than Chipotle Mexican. However, Direct Line is 1.79 times more volatile than Chipotle Mexican Grill. It trades about 0.04 of its potential returns per unit of risk. Chipotle Mexican Grill is currently generating about 0.08 per unit of risk. If you would invest 197.00 in Direct Line Insurance on November 5, 2024 and sell it today you would earn a total of 120.00 from holding Direct Line Insurance or generate 60.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Direct Line Insurance vs. Chipotle Mexican Grill
Performance |
| Timeline |
| Direct Line Insurance |
| Chipotle Mexican Grill |
Direct Line and Chipotle Mexican Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and Chipotle Mexican
The main advantage of trading using opposite Direct Line and Chipotle Mexican positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line 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.| Direct Line vs. SK TELECOM TDADR | Direct Line vs. Global Ship Lease | Direct Line vs. TELECOM ITALIA | Direct Line vs. Telecom Argentina SA |
| Chipotle Mexican vs. Guangdong Investment Limited | Chipotle Mexican vs. Canadian Utilities Limited | Chipotle Mexican vs. Air New Zealand | Chipotle Mexican vs. SOGECLAIR SA INH |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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