Correlation Between Chipotle Mexican and FAT Brands

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

Diversification Opportunities for Chipotle Mexican and FAT Brands

0.32

Correlation Coefficient

Chipotle Mexican  FAT Brands

Weak diversification

The 3 months correlation between Chipotle and FAT is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Chipotle Mexican Grill and FAT Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FAT 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 FAT Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FAT Brands has no effect on the direction of Chipotle Mexican i.e., Chipotle Mexican and FAT Brands go up and down completely randomly.

Pair Corralation between Chipotle Mexican and FAT Brands

Considering the 90-day investment horizon Chipotle Mexican is expected to generate 1.05 times less return on investment than FAT Brands. In addition to that, Chipotle Mexican is 1.82 times more volatile than FAT Brands. It trades about 0.09 of its total potential returns per unit of risk. FAT Brands is currently generating about 0.17 per unit of volatility. If you would invest  506.00  in FAT Brands on August 25, 2024 and sell it today you would earn a total of  26.00  from holding FAT Brands or generate 5.14% return on investment over 90 days.

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

Chipotle Mexican Grill  vs.  FAT Brands

Chipotle Mexican Grill

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chipotle Mexican Grill are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, Chipotle Mexican reported solid returns over the last few months and may actually be approaching a breakup point.

FAT Brands

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in FAT Brands are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, FAT Brands is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Chipotle Mexican and FAT Brands

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

The idea behind Chipotle Mexican Grill and FAT 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.

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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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.