Correlation Between Burlington Stores and Choice Hotels

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

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

Diversification Opportunities for Burlington Stores and Choice Hotels

0.79

Correlation Coefficient

Burlington Stores  Choice Hotels

Poor diversification

The 3 months correlation between Burlington and Choice is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Burlington Stores and Choice Hotels International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Choice Hotels Intern 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 Choice Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Choice Hotels Intern has no effect on the direction of Burlington Stores i.e., Burlington Stores and Choice Hotels go up and down completely randomly.

Pair Corralation between Burlington Stores and Choice Hotels

Assuming the 90 days trading horizon Burlington Stores is expected to generate 1.26 times more return on investment than Choice Hotels. However, Burlington Stores is 1.26 times more volatile than Choice Hotels International. It trades about 0.03 of its potential returns per unit of risk. Choice Hotels International is currently generating about -0.24 per unit of risk. If you would invest  27,600  in Burlington Stores on October 5, 2024 and sell it today you would earn a total of  200.00  from holding Burlington Stores or generate 0.72% return on investment over 90 days.

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

Burlington Stores  vs.  Choice Hotels International

Burlington Stores

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Burlington Stores has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively fragile basic indicators, Burlington Stores unveiled solid returns over the last few months and may actually be approaching a breakup point.

Choice Hotels Intern

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Choice Hotels International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Choice Hotels reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Burlington Stores and Choice Hotels

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

The idea behind Burlington Stores and Choice Hotels International 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.