Correlation Between Burlington Stores and Aris Water

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

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

Diversification Opportunities for Burlington Stores and Aris Water

0.72

Correlation Coefficient

Burlington Stores  Aris Water

Poor diversification

The 3 months correlation between Burlington and Aris is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Burlington Stores and Aris Water Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aris Water Solutions 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 Aris Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aris Water Solutions has no effect on the direction of Burlington Stores i.e., Burlington Stores and Aris Water go up and down completely randomly.

Pair Corralation between Burlington Stores and Aris Water

Given the investment horizon of 90 days Burlington Stores is expected to generate 6.79 times less return on investment than Aris Water. But when comparing it to its historical volatility, Burlington Stores is 2.47 times less risky than Aris Water. It trades about 0.06 of its potential returns per unit of risk. Aris Water Solutions is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,656  in Aris Water Solutions on September 15, 2024 and sell it today you would earn a total of  925.00  from holding Aris Water Solutions or generate 55.86% 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.  Aris Water Solutions

Burlington Stores

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Burlington Stores are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, Burlington Stores may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Aris Water Solutions

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aris Water Solutions are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward indicators, Aris Water unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Burlington Stores and Aris Water

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

The idea behind Burlington Stores and Aris Water Solutions 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.