Correlation Between Chipotle Mexican and Churchill Downs

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

Diversification Opportunities for Chipotle Mexican and Churchill Downs

0.89

Correlation Coefficient

Chipotle Mexican  Churchill Downs

Very poor diversification

The 3 months correlation between Chipotle and Churchill is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Chipotle Mexican Grill and Churchill Downs Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Churchill Downs 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 Churchill Downs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Churchill Downs has no effect on the direction of Chipotle Mexican i.e., Chipotle Mexican and Churchill Downs go up and down completely randomly.

Pair Corralation between Chipotle Mexican and Churchill Downs

Considering the 90-day investment horizon Chipotle Mexican Grill is expected to under-perform the Churchill Downs. But the stock apears to be less risky and, when comparing its historical volatility, Chipotle Mexican Grill is 1.25 times less risky than Churchill Downs. The stock trades about -0.09 of its potential returns per unit of risk. The Churchill Downs Incorporated is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  13,014  in Churchill Downs Incorporated on February 28, 2024 and sell it today you would earn a total of  285.00  from holding Churchill Downs Incorporated or generate 2.19% return on investment over 90 days.

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

Chipotle Mexican Grill  vs.  Churchill Downs Incorporated

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.

Churchill Downs

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Churchill Downs Incorporated are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Churchill Downs may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Chipotle Mexican and Churchill Downs

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

The idea behind Chipotle Mexican Grill and Churchill Downs Incorporated 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.