Correlation Between Chipotle Mexican and SCANSOURCE (SC3SG)

Can any of the company-specific risk be diversified away by investing in both Chipotle Mexican and SCANSOURCE (SC3SG) 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 SCANSOURCE (SC3SG) 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 SCANSOURCE, you can compare the effects of market volatilities on Chipotle Mexican and SCANSOURCE (SC3SG) 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 SCANSOURCE (SC3SG). Check out your portfolio center. Please also check ongoing floating volatility patterns of Chipotle Mexican and SCANSOURCE (SC3SG).

Diversification Opportunities for Chipotle Mexican and SCANSOURCE (SC3SG)

0.55

Correlation Coefficient

Chipotle Mexican  SCANSOURCE (SC3SG)

Very weak diversification

The 3 months correlation between Chipotle and SCANSOURCE is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Chipotle Mexican Grill and SCANSOURCE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SCANSOURCE (SC3SG) 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 SCANSOURCE (SC3SG). Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SCANSOURCE (SC3SG) has no effect on the direction of Chipotle Mexican i.e., Chipotle Mexican and SCANSOURCE (SC3SG) go up and down completely randomly.

Pair Corralation between Chipotle Mexican and SCANSOURCE (SC3SG)

Assuming the 90 days horizon Chipotle Mexican Grill is expected to generate 1.16 times more return on investment than SCANSOURCE (SC3SG). However, Chipotle Mexican is 1.16 times more volatile than SCANSOURCE. It trades about 0.16 of its potential returns per unit of risk. SCANSOURCE is currently generating about 0.17 per unit of risk. If you would invest  246,700  in Chipotle Mexican Grill on February 29, 2024 and sell it today you would earn a total of  45,850  from holding Chipotle Mexican Grill or generate 18.59% return on investment over 90 days.

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

Chipotle Mexican Grill  vs.  SCANSOURCE

Chipotle Mexican Grill

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chipotle Mexican Grill are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Chipotle Mexican reported solid returns over the last few months and may actually be approaching a breakup point.

SCANSOURCE (SC3SG)

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SCANSOURCE are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SCANSOURCE (SC3SG) unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chipotle Mexican and SCANSOURCE (SC3SG)

The main advantage of trading using opposite Chipotle Mexican and SCANSOURCE (SC3SG) positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chipotle Mexican position performs unexpectedly, SCANSOURCE (SC3SG) 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 SCANSOURCE (SC3SG) will offset losses from the drop in SCANSOURCE (SC3SG)'s long position.

The idea behind Chipotle Mexican Grill and SCANSOURCE 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.