Correlation Between Burlington Stores, and Advance Auto

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

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

Diversification Opportunities for Burlington Stores, and Advance Auto

0.74

Correlation Coefficient

Burlington Stores,  Advance Auto

Poor diversification

The 3 months correlation between Burlington and Advance is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Burlington Stores, and Advance Auto Parts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advance Auto Parts and Burlington Stores, 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 Burlington Stores, are associated (or correlated) with Advance Auto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advance Auto Parts has no effect on the direction of Burlington Stores, i.e., Burlington Stores, and Advance Auto go up and down completely randomly.

Pair Corralation between Burlington Stores, and Advance Auto

Assuming the 90 days trading horizon Burlington Stores, is expected to under-perform the Advance Auto. But the stock apears to be less risky and, when comparing its historical volatility, Burlington Stores, is 1.69 times less risky than Advance Auto. The stock trades about -0.13 of its potential returns per unit of risk. The Advance Auto Parts is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,676  in Advance Auto Parts on October 24, 2024 and sell it today you would earn a total of  55.00  from holding Advance Auto Parts or generate 3.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	68.42%
Values	Daily Returns

Burlington Stores,  vs.  Advance Auto Parts

Burlington Stores,

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Burlington Stores, has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, Burlington Stores, sustained solid returns over the last few months and may actually be approaching a breakup point.

Advance Auto Parts

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Advance Auto Parts are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Advance Auto sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Burlington Stores, and Advance Auto

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

The idea behind Burlington Stores, and Advance Auto Parts 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.