Correlation Between Walmart and Burlington Stores

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

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

Diversification Opportunities for Walmart and Burlington Stores

0.69

Correlation Coefficient

Walmart  Burlington Stores

Poor diversification

The 3 months correlation between Walmart and Burlington is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Burlington Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Burlington Stores and Walmart 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 Walmart 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 Walmart i.e., Walmart and Burlington Stores go up and down completely randomly.

Pair Corralation between Walmart and Burlington Stores

Assuming the 90 days trading horizon Walmart is expected to generate 1.85 times less return on investment than Burlington Stores. But when comparing it to its historical volatility, Walmart is 4.11 times less risky than Burlington Stores. It trades about 0.27 of its potential returns per unit of risk. Burlington Stores is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  425,300  in Burlington Stores on September 5, 2024 and sell it today you would earn a total of  168,900  from holding Burlington Stores or generate 39.71% return on investment over 90 days.

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

Walmart  vs.  Burlington Stores

Walmart

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Walmart showed solid returns over the last few months and may actually be approaching a breakup point.

Burlington Stores

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Burlington Stores are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Burlington Stores showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Walmart and Burlington Stores

The main advantage of trading using opposite Walmart and Burlington Stores positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walmart 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 Walmart 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.