Correlation Between Merck and Chipotle Mexican

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

Diversification Opportunities for Merck and Chipotle Mexican

-0.03
  Correlation Coefficient

Good diversification

The 3 months correlation between Merck and Chipotle is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company 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 Merck 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 Merck Company 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 Merck i.e., Merck and Chipotle Mexican go up and down completely randomly.

Pair Corralation between Merck and Chipotle Mexican

Considering the 90-day investment horizon Merck Company is expected to generate 0.5 times more return on investment than Chipotle Mexican. However, Merck Company is 1.98 times less risky than Chipotle Mexican. It trades about 0.1 of its potential returns per unit of risk. Chipotle Mexican Grill is currently generating about 0.03 per unit of risk. If you would invest  7,946  in Merck Company on October 30, 2022 and sell it today you would earn a total of  2,592  from holding Merck Company or generate 32.62% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Merck Company  vs.  Chipotle Mexican Grill

 Performance (%) 
       Timeline  
Merck Company 
Merck Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Merck is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Merck Price Channel

Chipotle Mexican Grill 
Chipotle Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Chipotle Mexican Grill are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, Chipotle Mexican may actually be approaching a critical reversion point that can send shares even higher in February 2023.

Chipotle Price Channel

Merck and Chipotle Mexican Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merck and Chipotle Mexican

The main advantage of trading using opposite Merck and Chipotle Mexican positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck 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 Merck Company 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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