Correlation Between BURLINGTON STORES and STMicroelectronics

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

By analyzing existing cross correlation between BURLINGTON STORES and STMicroelectronics NV, you can compare the effects of market volatilities on BURLINGTON STORES and STMicroelectronics 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 STMicroelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of BURLINGTON STORES and STMicroelectronics.

Diversification Opportunities for BURLINGTON STORES and STMicroelectronics

-0.6

Correlation Coefficient

BURLINGTON STORES  STMicroelectronics

Excellent diversification

The 3 months correlation between BURLINGTON and STMicroelectronics is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding BURLINGTON STORES and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics 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 STMicroelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STMicroelectronics has no effect on the direction of BURLINGTON STORES i.e., BURLINGTON STORES and STMicroelectronics go up and down completely randomly.

Pair Corralation between BURLINGTON STORES and STMicroelectronics

Assuming the 90 days trading horizon BURLINGTON STORES is expected to generate 0.99 times more return on investment than STMicroelectronics. However, BURLINGTON STORES is 1.01 times less risky than STMicroelectronics. It trades about 0.1 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about 0.02 per unit of risk. If you would invest  24,200  in BURLINGTON STORES on September 12, 2024 and sell it today you would earn a total of  3,200  from holding BURLINGTON STORES or generate 13.22% return on investment over 90 days.

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

BURLINGTON STORES  vs.  STMicroelectronics NV

BURLINGTON STORES

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BURLINGTON STORES are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain forward indicators, BURLINGTON STORES exhibited solid returns over the last few months and may actually be approaching a breakup point.

STMicroelectronics

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in STMicroelectronics NV are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, STMicroelectronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with BURLINGTON STORES and STMicroelectronics

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

The idea behind BURLINGTON STORES and STMicroelectronics NV 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.