Correlation Between HP and BURLINGTON STORES

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

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

Diversification Opportunities for HP and BURLINGTON STORES

0.4

Correlation Coefficient

HP  BURLINGTON STORES

Very weak diversification

The 3 months correlation between HP and BURLINGTON is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and BURLINGTON STORES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BURLINGTON STORES and HP 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 HP Inc 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 HP i.e., HP and BURLINGTON STORES go up and down completely randomly.

Pair Corralation between HP and BURLINGTON STORES

Assuming the 90 days horizon HP is expected to generate 1.85 times less return on investment than BURLINGTON STORES. In addition to that, HP is 1.07 times more volatile than BURLINGTON STORES. It trades about 0.05 of its total potential returns per unit of risk. BURLINGTON STORES is currently generating about 0.1 per unit of volatility. If you would invest  16,700  in BURLINGTON STORES on September 13, 2024 and sell it today you would earn a total of  10,700  from holding BURLINGTON STORES or generate 64.07% return on investment over 90 days.

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

HP Inc  vs.  BURLINGTON STORES

HP Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HP Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, HP reported solid returns over the last few months and may actually be approaching a breakup point.

BURLINGTON STORES

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BURLINGTON STORES are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain forward indicators, BURLINGTON STORES may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with HP and BURLINGTON STORES

The main advantage of trading using opposite HP and BURLINGTON STORES positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HP 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 HP Inc 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.