Correlation Between Fast Retailing and Burlington Stores

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

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

Diversification Opportunities for Fast Retailing and Burlington Stores

-0.43

Correlation Coefficient

Fast Retailing  Burlington Stores

Very good diversification

The 3 months correlation between Fast and Burlington is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Burlington Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Burlington Stores and Fast Retailing 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 Fast Retailing Co 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 Fast Retailing i.e., Fast Retailing and Burlington Stores go up and down completely randomly.

Pair Corralation between Fast Retailing and Burlington Stores

Assuming the 90 days horizon Fast Retailing Co is expected to under-perform the Burlington Stores. But the pink sheet apears to be less risky and, when comparing its historical volatility, Fast Retailing Co is 1.22 times less risky than Burlington Stores. The pink sheet trades about -0.23 of its potential returns per unit of risk. The Burlington Stores is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  29,549  in Burlington Stores on October 12, 2024 and sell it today you would lose (954.00) from holding Burlington Stores or give up 3.23% of portfolio value over 90 days.

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

Fast Retailing Co  vs.  Burlington Stores

Fast Retailing

Risk-Adjusted Performance

0 of 100

Very Weak

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

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. Despite quite weak basic indicators, Burlington Stores disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fast Retailing and Burlington Stores

The main advantage of trading using opposite Fast Retailing and Burlington Stores positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fast Retailing 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 Fast Retailing Co 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.