Correlation Between Burlington Stores and European Wax

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

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

Diversification Opportunities for Burlington Stores and European Wax

-0.61

Correlation Coefficient

Burlington Stores  European Wax

Excellent diversification

The 3 months correlation between Burlington and European is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Burlington Stores and European Wax Center in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on European Wax Center 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 European Wax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of European Wax Center has no effect on the direction of Burlington Stores i.e., Burlington Stores and European Wax go up and down completely randomly.

Pair Corralation between Burlington Stores and European Wax

Given the investment horizon of 90 days Burlington Stores is expected to generate 0.42 times more return on investment than European Wax. However, Burlington Stores is 2.4 times less risky than European Wax. It trades about 0.05 of its potential returns per unit of risk. European Wax Center is currently generating about -0.07 per unit of risk. If you would invest  27,198  in Burlington Stores on September 22, 2024 and sell it today you would earn a total of  1,327  from holding Burlington Stores or generate 4.88% return on investment over 90 days.

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

Burlington Stores  vs.  European Wax Center

Burlington Stores

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Burlington Stores are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Burlington Stores is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

European Wax Center

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days European Wax Center has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Burlington Stores and European Wax

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

The idea behind Burlington Stores and European Wax Center 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.