Correlation Between Chipotle Mexican and Bloomin Brands
Can any of the company-specific risk be diversified away by investing in both Chipotle Mexican and Bloomin 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 Bloomin 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 Bloomin Brands, you can compare the effects of market volatilities on Chipotle Mexican and Bloomin 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 Bloomin Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chipotle Mexican and Bloomin Brands.
Diversification Opportunities for Chipotle Mexican and Bloomin Brands
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Chipotle and Bloomin is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Chipotle Mexican Grill and Bloomin Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bloomin 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 Bloomin Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bloomin Brands has no effect on the direction of Chipotle Mexican i.e., Chipotle Mexican and Bloomin Brands go up and down completely randomly.
Pair Corralation between Chipotle Mexican and Bloomin Brands
Considering the 90-day investment horizon Chipotle Mexican Grill is expected to generate 0.69 times more return on investment than Bloomin Brands. However, Chipotle Mexican Grill is 1.45 times less risky than Bloomin Brands. It trades about 0.12 of its potential returns per unit of risk. Bloomin Brands is currently generating about 0.03 per unit of risk. If you would invest 205,307 in Chipotle Mexican Grill on January 19, 2024 and sell it today you would earn a total of 85,490 from holding Chipotle Mexican Grill or generate 41.64% 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. Bloomin Brands
Performance |
| Timeline |
| Chipotle Mexican Grill |
| Bloomin Brands |
Chipotle Mexican and Bloomin Brands Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chipotle Mexican and Bloomin Brands
The main advantage of trading using opposite Chipotle Mexican and Bloomin Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chipotle Mexican position performs unexpectedly, Bloomin 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 Bloomin Brands will offset losses from the drop in Bloomin Brands' long position.The idea behind Chipotle Mexican Grill and Bloomin 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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