Correlation Between Burlington Stores and Costco Wholesale

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

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

Diversification Opportunities for Burlington Stores and Costco Wholesale

-0.32

Correlation Coefficient

Burlington Stores  Costco Wholesale

Very good diversification

The 3 months correlation between Burlington and Costco is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Burlington Stores and Costco Wholesale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Costco Wholesale 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 Costco Wholesale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Costco Wholesale has no effect on the direction of Burlington Stores i.e., Burlington Stores and Costco Wholesale go up and down completely randomly.

Pair Corralation between Burlington Stores and Costco Wholesale

Assuming the 90 days trading horizon Burlington Stores is expected to under-perform the Costco Wholesale. But the stock apears to be less risky and, when comparing its historical volatility, Burlington Stores is 2.2 times less risky than Costco Wholesale. The stock trades about -0.13 of its potential returns per unit of risk. The Costco Wholesale is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,926,857  in Costco Wholesale on December 26, 2024 and sell it today you would lose (61,857) from holding Costco Wholesale or give up 3.21% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Burlington Stores  vs.  Costco Wholesale

Burlington Stores

Risk-Adjusted Performance

Very Weak

Over the last 90 days Burlington Stores has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Costco Wholesale

Risk-Adjusted Performance

Very Weak

Over the last 90 days Costco Wholesale has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Costco Wholesale is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Burlington Stores and Costco Wholesale

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

The idea behind Burlington Stores and Costco Wholesale 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.