Correlation Between B of A and Chipotle Mexican

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Can any of the company-specific risk be diversified away by investing in both B of A 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 B of A and Chipotle Mexican into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bank Of America and Chipotle Mexican Grill, you can compare the effects of market volatilities on B of A 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 B of A with a short position of Chipotle Mexican. Check out your portfolio center. Please also check ongoing floating volatility patterns of B of A and Chipotle Mexican.

Diversification Opportunities for B of A and Chipotle Mexican

0.23
  Correlation Coefficient

Modest diversification

The 3 months correlation between B of A and Chipotle is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Bank Of America 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 B of A 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 Bank Of America 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 B of A i.e., B of A and Chipotle Mexican go up and down completely randomly.

Pair Corralation between B of A and Chipotle Mexican

Considering the 90-day investment horizon Bank Of America is expected to under-perform the Chipotle Mexican. But the stock apears to be less risky and, when comparing its historical volatility, Bank Of America is 1.26 times less risky than Chipotle Mexican. The stock trades about -0.05 of its potential returns per unit of risk. The Chipotle Mexican Grill is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  145,294  in Chipotle Mexican Grill on November 2, 2022 and sell it today you would earn a total of  18,218  from holding Chipotle Mexican Grill or generate 12.54% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Bank Of America  vs.  Chipotle Mexican Grill

 Performance (%) 
       Timeline  
Bank Of America 
B of A Performance
0 of 100
Over the last 90 days Bank Of America has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, B of A is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

B of A Price Channel

Chipotle Mexican Grill 
Chipotle Performance
9 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Chipotle Mexican Grill are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather sluggish primary indicators, Chipotle Mexican exhibited solid returns over the last few months and may actually be approaching a breakup point.

Chipotle Price Channel

B of A and Chipotle Mexican Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with B of A and Chipotle Mexican

The main advantage of trading using opposite B of A and Chipotle Mexican positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if B of A 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.
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The idea behind Bank Of America and Chipotle Mexican Grill 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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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.

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