Correlation Between Burlington Stores and TreeHouse Foods

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

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

Diversification Opportunities for Burlington Stores and TreeHouse Foods

-0.4

Correlation Coefficient

Burlington Stores  TreeHouse Foods

Very good diversification

The 3 months correlation between Burlington and TreeHouse is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Burlington Stores and TreeHouse Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TreeHouse Foods 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 TreeHouse Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TreeHouse Foods has no effect on the direction of Burlington Stores i.e., Burlington Stores and TreeHouse Foods go up and down completely randomly.

Pair Corralation between Burlington Stores and TreeHouse Foods

Assuming the 90 days trading horizon Burlington Stores is expected to generate 0.7 times more return on investment than TreeHouse Foods. However, Burlington Stores is 1.44 times less risky than TreeHouse Foods. It trades about 0.13 of its potential returns per unit of risk. TreeHouse Foods is currently generating about -0.03 per unit of risk. If you would invest  24,000  in Burlington Stores on October 6, 2024 and sell it today you would earn a total of  3,600  from holding Burlington Stores or generate 15.0% return on investment over 90 days.

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

Burlington Stores  vs.  TreeHouse Foods

Burlington Stores

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Burlington Stores are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. 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.

TreeHouse Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TreeHouse Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, TreeHouse Foods is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Burlington Stores and TreeHouse Foods

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

The idea behind Burlington Stores and TreeHouse Foods 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.