Correlation Between Chipotle Mexican and Royal Caribbean

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

Diversification Opportunities for Chipotle Mexican and Royal Caribbean

0.76

Correlation Coefficient

Chipotle Mexican  Royal Caribbean

Poor diversification

The 3 months correlation between Chipotle and Royal is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Chipotle Mexican Grill and Royal Caribbean Cruises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Caribbean Cruises 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 Royal Caribbean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Caribbean Cruises has no effect on the direction of Chipotle Mexican i.e., Chipotle Mexican and Royal Caribbean go up and down completely randomly.

Pair Corralation between Chipotle Mexican and Royal Caribbean

Considering the 90-day investment horizon Chipotle Mexican is expected to generate 1.38 times less return on investment than Royal Caribbean. But when comparing it to its historical volatility, Chipotle Mexican Grill is 1.18 times less risky than Royal Caribbean. It trades about 0.27 of its potential returns per unit of risk. Royal Caribbean Cruises is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest  20,836  in Royal Caribbean Cruises on August 31, 2024 and sell it today you would earn a total of  3,326  from holding Royal Caribbean Cruises or generate 15.96% return on investment over 90 days.

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

Chipotle Mexican Grill  vs.  Royal Caribbean Cruises

Chipotle Mexican Grill

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chipotle Mexican Grill are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Chipotle Mexican reported solid returns over the last few months and may actually be approaching a breakup point.

Royal Caribbean Cruises

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Caribbean Cruises are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting fundamental indicators, Royal Caribbean disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chipotle Mexican and Royal Caribbean

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

The idea behind Chipotle Mexican Grill and Royal Caribbean Cruises 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.

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 the Fundamental Analysis module to view fundamental data based on most recent published financial statements.