Correlation Between Target and Burlington Stores

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

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

Diversification Opportunities for Target and Burlington Stores

0.89

Correlation Coefficient

Target  Burlington Stores

Very poor diversification

The 3 months correlation between Target and Burlington is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Target and Burlington Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Burlington Stores and Target 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 Target are associated (or correlated) with Burlington Stores. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Burlington Stores has no effect on the direction of Target i.e., Target and Burlington Stores go up and down completely randomly.

Pair Corralation between Target and Burlington Stores

Assuming the 90 days horizon Target is expected to under-perform the Burlington Stores. But the stock apears to be less risky and, when comparing its historical volatility, Target is 1.1 times less risky than Burlington Stores. The stock trades about -0.2 of its potential returns per unit of risk. The Burlington Stores is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  27,800  in Burlington Stores on December 30, 2024 and sell it today you would lose (5,200) from holding Burlington Stores or give up 18.71% of portfolio value over 90 days.

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

Target  vs.  Burlington Stores

Target

Risk-Adjusted Performance

Very Weak

Over the last 90 days Target has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Target and Burlington Stores

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

The idea behind Target and Burlington Stores 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.