Correlation Between Wayfair and Burlington Stores

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

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

Diversification Opportunities for Wayfair and Burlington Stores

0.12

Correlation Coefficient

Wayfair  Burlington Stores

Average diversification

The 3 months correlation between Wayfair and Burlington is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Wayfair and Burlington Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Burlington Stores and Wayfair 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 Wayfair 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 Wayfair i.e., Wayfair and Burlington Stores go up and down completely randomly.

Pair Corralation between Wayfair and Burlington Stores

Taking into account the 90-day investment horizon Wayfair is expected to generate 2.8 times more return on investment than Burlington Stores. However, Wayfair is 2.8 times more volatile than Burlington Stores. It trades about 0.06 of its potential returns per unit of risk. Burlington Stores is currently generating about 0.0 per unit of risk. If you would invest  4,403  in Wayfair on September 23, 2024 and sell it today you would earn a total of  169.00  from holding Wayfair or generate 3.84% return on investment over 90 days.

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

Wayfair  vs.  Burlington Stores

Wayfair

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wayfair has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

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 recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Wayfair and Burlington Stores

The main advantage of trading using opposite Wayfair and Burlington Stores positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wayfair 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 Wayfair 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.