Correlation Between Chipotle Mexican and Designer Brands

Can any of the company-specific risk be diversified away by investing in both Chipotle Mexican and Designer Brands 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 Designer Brands 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 Designer Brands, you can compare the effects of market volatilities on Chipotle Mexican and Designer Brands 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 Designer Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chipotle Mexican and Designer Brands.

Diversification Opportunities for Chipotle Mexican and Designer Brands

-0.43

Correlation Coefficient

Chipotle Mexican  Designer Brands

Very good diversification

The 3 months correlation between Chipotle and Designer is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Chipotle Mexican Grill and Designer Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Designer Brands 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 Designer Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Designer Brands has no effect on the direction of Chipotle Mexican i.e., Chipotle Mexican and Designer Brands go up and down completely randomly.

Pair Corralation between Chipotle Mexican and Designer Brands

Considering the 90-day investment horizon Chipotle Mexican Grill is expected to generate 0.43 times more return on investment than Designer Brands. However, Chipotle Mexican Grill is 2.33 times less risky than Designer Brands. It trades about 0.08 of its potential returns per unit of risk. Designer Brands is currently generating about -0.05 per unit of risk. If you would invest  4,413  in Chipotle Mexican Grill on August 24, 2024 and sell it today you would earn a total of  1,783  from holding Chipotle Mexican Grill or generate 40.4% return on investment over 90 days.

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

Chipotle Mexican Grill  vs.  Designer Brands

Chipotle Mexican Grill

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Chipotle Mexican Grill are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, Chipotle Mexican may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Designer Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Designer Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's fundamental drivers remain fairly strong which may send shares a bit higher in December 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Chipotle Mexican and Designer Brands

The main advantage of trading using opposite Chipotle Mexican and Designer Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chipotle Mexican position performs unexpectedly, Designer Brands 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 Designer Brands will offset losses from the drop in Designer Brands' long position.

The idea behind Chipotle Mexican Grill and Designer Brands 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.

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 Transaction History module to view history of all your transactions and understand their impact on performance.