Correlation Between Dell Technologies and Chipotle Mexican

Can any of the company-specific risk be diversified away by investing in both Dell Technologies 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 Dell Technologies and Chipotle Mexican into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dell Technologies and Chipotle Mexican Grill, you can compare the effects of market volatilities on Dell Technologies 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 Dell Technologies with a short position of Chipotle Mexican. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dell Technologies and Chipotle Mexican.

Diversification Opportunities for Dell Technologies and Chipotle Mexican

0.85

Correlation Coefficient

Dell Technologies  Chipotle Mexican

Very poor diversification

The 3 months correlation between Dell and Chipotle is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Dell Technologies 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 Dell Technologies 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 Dell Technologies 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 Dell Technologies i.e., Dell Technologies and Chipotle Mexican go up and down completely randomly.

Pair Corralation between Dell Technologies and Chipotle Mexican

Given the investment horizon of 90 days Dell Technologies is expected to generate 1.69 times more return on investment than Chipotle Mexican. However, Dell Technologies is 1.69 times more volatile than Chipotle Mexican Grill. It trades about 0.13 of its potential returns per unit of risk. Chipotle Mexican Grill is currently generating about 0.11 per unit of risk. If you would invest  3,323  in Dell Technologies on January 19, 2024 and sell it today you would earn a total of  8,514  from holding Dell Technologies or generate 256.21% return on investment over 90 days.

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

Dell Technologies  vs.  Chipotle Mexican Grill

Dell Technologies

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dell Technologies are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain essential indicators, Dell Technologies disclosed solid returns over the last few months and may actually be approaching a breakup point.

Chipotle Mexican Grill

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Chipotle Mexican Grill are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating primary indicators, Chipotle Mexican reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dell Technologies and Chipotle Mexican

The main advantage of trading using opposite Dell Technologies and Chipotle Mexican positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dell Technologies 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.

The idea behind Dell Technologies 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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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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.