Correlation Between Burlington Stores and HANOVER INSURANCE

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

By analyzing existing cross correlation between Burlington Stores and HANOVER INSURANCE, you can compare the effects of market volatilities on Burlington Stores and HANOVER INSURANCE 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 HANOVER INSURANCE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Burlington Stores and HANOVER INSURANCE.

Diversification Opportunities for Burlington Stores and HANOVER INSURANCE

0.81

Correlation Coefficient

Burlington Stores  HANOVER INSURANCE

Very poor diversification

The 3 months correlation between Burlington and HANOVER is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Burlington Stores and HANOVER INSURANCE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HANOVER INSURANCE 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 HANOVER INSURANCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HANOVER INSURANCE has no effect on the direction of Burlington Stores i.e., Burlington Stores and HANOVER INSURANCE go up and down completely randomly.

Pair Corralation between Burlington Stores and HANOVER INSURANCE

Assuming the 90 days trading horizon Burlington Stores is expected to generate 1.34 times more return on investment than HANOVER INSURANCE. However, Burlington Stores is 1.34 times more volatile than HANOVER INSURANCE. It trades about 0.2 of its potential returns per unit of risk. HANOVER INSURANCE is currently generating about 0.16 per unit of risk. If you would invest  22,800  in Burlington Stores on October 8, 2024 and sell it today you would earn a total of  5,400  from holding Burlington Stores or generate 23.68% return on investment over 90 days.

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

Burlington Stores  vs.  HANOVER INSURANCE

Burlington Stores

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Burlington Stores are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Burlington Stores unveiled solid returns over the last few months and may actually be approaching a breakup point.

HANOVER INSURANCE

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HANOVER INSURANCE are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, HANOVER INSURANCE exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Burlington Stores and HANOVER INSURANCE

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

The idea behind Burlington Stores and HANOVER INSURANCE 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.