Correlation Between Chipotle Mexican and Biglari Holdings
Can any of the company-specific risk be diversified away by investing in both Chipotle Mexican and Biglari Holdings 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 Biglari Holdings 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 Biglari Holdings, you can compare the effects of market volatilities on Chipotle Mexican and Biglari Holdings 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 Biglari Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chipotle Mexican and Biglari Holdings.
Diversification Opportunities for Chipotle Mexican and Biglari Holdings
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Chipotle and Biglari is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Chipotle Mexican Grill and Biglari Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biglari Holdings 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 Biglari Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biglari Holdings has no effect on the direction of Chipotle Mexican i.e., Chipotle Mexican and Biglari Holdings go up and down completely randomly.
Pair Corralation between Chipotle Mexican and Biglari Holdings
Considering the 90-day investment horizon Chipotle Mexican Grill is expected to generate 0.6 times more return on investment than Biglari Holdings. However, Chipotle Mexican Grill is 1.66 times less risky than Biglari Holdings. It trades about 0.17 of its potential returns per unit of risk. Biglari Holdings is currently generating about -0.07 per unit of risk. If you would invest 279,756 in Chipotle Mexican Grill on January 19, 2024 and sell it today you would earn a total of 12,897 from holding Chipotle Mexican Grill or generate 4.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Chipotle Mexican Grill vs. Biglari Holdings
Performance |
| Timeline |
| Chipotle Mexican Grill |
| Biglari Holdings |
Chipotle Mexican and Biglari Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chipotle Mexican and Biglari Holdings
The main advantage of trading using opposite Chipotle Mexican and Biglari Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chipotle Mexican position performs unexpectedly, Biglari Holdings 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 Biglari Holdings will offset losses from the drop in Biglari Holdings' long position.The idea behind Chipotle Mexican Grill and Biglari Holdings 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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