Correlation Between Chipotle Mexican and BJs Restaurants

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

Diversification Opportunities for Chipotle Mexican and BJs Restaurants

-0.27

Correlation Coefficient

Chipotle Mexican  BJs Restaurants

Very good diversification

The 3 months correlation between Chipotle and BJs is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Chipotle Mexican Grill and BJs Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BJs Restaurants 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 BJs Restaurants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BJs Restaurants has no effect on the direction of Chipotle Mexican i.e., Chipotle Mexican and BJs Restaurants go up and down completely randomly.

Pair Corralation between Chipotle Mexican and BJs Restaurants

Considering the 90-day investment horizon Chipotle Mexican Grill is expected to generate 0.57 times more return on investment than BJs Restaurants. However, Chipotle Mexican Grill is 1.77 times less risky than BJs Restaurants. It trades about 0.21 of its potential returns per unit of risk. BJs Restaurants is currently generating about 0.02 per unit of risk. If you would invest  267,172  in Chipotle Mexican Grill on February 28, 2024 and sell it today you would earn a total of  47,991  from holding Chipotle Mexican Grill or generate 17.96% return on investment over 90 days.

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

Chipotle Mexican Grill  vs.  BJs Restaurants

Chipotle Mexican Grill

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Chipotle Mexican Grill are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting primary indicators, Chipotle Mexican reported solid returns over the last few months and may actually be approaching a breakup point.

BJs Restaurants

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BJs Restaurants are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, BJs Restaurants is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Chipotle Mexican and BJs Restaurants

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

The idea behind Chipotle Mexican Grill and BJs Restaurants 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.