Correlation Between Wendys and Chipotle Mexican

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

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

Diversification Opportunities for Wendys and Chipotle Mexican

0.54

Correlation Coefficient

Wendys  Chipotle Mexican

Very weak diversification

The 3 months correlation between Wendys and Chipotle is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding The Wendys Co 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 Wendys 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 The Wendys Co 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 Wendys i.e., Wendys and Chipotle Mexican go up and down completely randomly.

Pair Corralation between Wendys and Chipotle Mexican

Considering the 90-day investment horizon The Wendys Co is expected to generate 1.02 times more return on investment than Chipotle Mexican. However, Wendys is 1.02 times more volatile than Chipotle Mexican Grill. It trades about 0.1 of its potential returns per unit of risk. Chipotle Mexican Grill is currently generating about 0.09 per unit of risk. If you would invest  1,666  in The Wendys Co on August 30, 2024 and sell it today you would earn a total of  187.00  from holding The Wendys Co or generate 11.22% return on investment over 90 days.

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

The Wendys Co  vs.  Chipotle Mexican Grill

The Wendys

Risk-Adjusted Performance

7 of 100

OK

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

Chipotle Mexican Grill

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chipotle Mexican Grill are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, Chipotle Mexican may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Wendys and Chipotle Mexican

The main advantage of trading using opposite Wendys and Chipotle Mexican positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wendys 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 The Wendys Co 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.