Correlation Between HYDROFARM HLD and Burlington Stores

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

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

Diversification Opportunities for HYDROFARM HLD and Burlington Stores

0.35

Correlation Coefficient

HYDROFARM HLD  Burlington Stores

Weak diversification

The 3 months correlation between HYDROFARM and Burlington is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding HYDROFARM HLD GRP and Burlington Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Burlington Stores and HYDROFARM HLD 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 HYDROFARM HLD GRP 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 HYDROFARM HLD i.e., HYDROFARM HLD and Burlington Stores go up and down completely randomly.

Pair Corralation between HYDROFARM HLD and Burlington Stores

Assuming the 90 days trading horizon HYDROFARM HLD GRP is expected to generate 1.83 times more return on investment than Burlington Stores. However, HYDROFARM HLD is 1.83 times more volatile than Burlington Stores. It trades about 0.15 of its potential returns per unit of risk. Burlington Stores is currently generating about 0.12 per unit of risk. If you would invest  53.00  in HYDROFARM HLD GRP on September 5, 2024 and sell it today you would earn a total of  22.00  from holding HYDROFARM HLD GRP or generate 41.51% return on investment over 90 days.

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

HYDROFARM HLD GRP  vs.  Burlington Stores

HYDROFARM HLD GRP

Risk-Adjusted Performance

11 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HYDROFARM HLD GRP are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, HYDROFARM HLD reported solid returns over the last few months and may actually be approaching a breakup point.

Burlington Stores

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Burlington Stores are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Burlington Stores reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HYDROFARM HLD and Burlington Stores

The main advantage of trading using opposite HYDROFARM HLD and Burlington Stores positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HYDROFARM HLD 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 HYDROFARM HLD GRP 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.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.