Correlation Between Lowes Companies and BURLINGTON STORES

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

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

Diversification Opportunities for Lowes Companies and BURLINGTON STORES

0.8

Correlation Coefficient

Lowes Companies  BURLINGTON STORES

Very poor diversification

The 3 months correlation between Lowes and BURLINGTON is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Lowes Companies and BURLINGTON STORES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BURLINGTON STORES and Lowes Companies 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 Lowes Companies 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 Lowes Companies i.e., Lowes Companies and BURLINGTON STORES go up and down completely randomly.

Pair Corralation between Lowes Companies and BURLINGTON STORES

Assuming the 90 days horizon Lowes Companies is expected to generate 0.58 times more return on investment than BURLINGTON STORES. However, Lowes Companies is 1.71 times less risky than BURLINGTON STORES. It trades about -0.08 of its potential returns per unit of risk. BURLINGTON STORES is currently generating about -0.11 per unit of risk. If you would invest  23,478  in Lowes Companies on December 30, 2024 and sell it today you would lose (1,983) from holding Lowes Companies or give up 8.45% of portfolio value over 90 days.

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

Lowes Companies  vs.  BURLINGTON STORES

Lowes Companies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lowes Companies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains 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. In spite of fragile performance in the last few months, the Stock's forward indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Lowes Companies and BURLINGTON STORES

The main advantage of trading using opposite Lowes Companies and BURLINGTON STORES positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lowes Companies 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's long position.

The idea behind Lowes Companies 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.