Correlation Between Telefonaktiebolaget and Chipotle Mexican

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

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

Diversification Opportunities for Telefonaktiebolaget and Chipotle Mexican

0.78

Correlation Coefficient

Telefonaktiebolaget  Chipotle Mexican

Poor diversification

The 3 months correlation between Telefonaktiebolaget and Chipotle is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso 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 Telefonaktiebolaget 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 Telefonaktiebolaget LM Ericsson 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 Telefonaktiebolaget i.e., Telefonaktiebolaget and Chipotle Mexican go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and Chipotle Mexican

Assuming the 90 days trading horizon Telefonaktiebolaget LM Ericsson is expected to generate 1.13 times more return on investment than Chipotle Mexican. However, Telefonaktiebolaget is 1.13 times more volatile than Chipotle Mexican Grill. It trades about 0.15 of its potential returns per unit of risk. Chipotle Mexican Grill is currently generating about 0.15 per unit of risk. If you would invest  2,040  in Telefonaktiebolaget LM Ericsson on September 5, 2024 and sell it today you would earn a total of  428.00  from holding Telefonaktiebolaget LM Ericsson or generate 20.98% return on investment over 90 days.

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

Telefonaktiebolaget LM Ericsso  vs.  Chipotle Mexican Grill

Telefonaktiebolaget

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonaktiebolaget LM Ericsson are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Telefonaktiebolaget sustained solid returns over the last few months and may actually be approaching a breakup point.

Chipotle Mexican Grill

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chipotle Mexican Grill are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, Chipotle Mexican sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Telefonaktiebolaget and Chipotle Mexican

The main advantage of trading using opposite Telefonaktiebolaget and Chipotle Mexican positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Telefonaktiebolaget 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 Telefonaktiebolaget LM Ericsson 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.