Correlation Between Best Buy and Burlington Stores

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

By analyzing existing cross correlation between Best Buy Co and Burlington Stores, you can compare the effects of market volatilities on Best Buy and Burlington Stores 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 Best Buy with a short position of Burlington Stores. Check out your portfolio center. Please also check ongoing floating volatility patterns of Best Buy and Burlington Stores.

Diversification Opportunities for Best Buy and Burlington Stores

0.0

Correlation Coefficient

Best Buy  Burlington Stores

Pay attention - limited upside

The 3 months correlation between Best and Burlington is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Best Buy Co and Burlington Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Burlington Stores and Best Buy 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 Best Buy Co are associated (or correlated) with Burlington Stores. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Burlington Stores has no effect on the direction of Best Buy i.e., Best Buy and Burlington Stores go up and down completely randomly.

Pair Corralation between Best Buy and Burlington Stores

Assuming the 90 days trading horizon Best Buy Co is expected to under-perform the Burlington Stores. But the stock apears to be less risky and, when comparing its historical volatility, Best Buy Co is 2.48 times less risky than Burlington Stores. The stock trades about -0.03 of its potential returns per unit of risk. The Burlington Stores is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  580,500  in Burlington Stores on January 30, 2024 and sell it today you would lose (274,500) from holding Burlington Stores or give up 47.29% of portfolio value over 90 days.

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

Best Buy Co  vs.  Burlington Stores

Best Buy

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Best Buy Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Best Buy may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Burlington Stores

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Burlington Stores has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Burlington Stores is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Best Buy and Burlington Stores

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

The idea behind Best Buy Co and Burlington Stores 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.