Correlation Between BURLINGTON STORES and Costco Wholesale

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

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

Diversification Opportunities for BURLINGTON STORES and Costco Wholesale

0.77

Correlation Coefficient

BURLINGTON STORES  Costco Wholesale

Poor diversification

The 3 months correlation between BURLINGTON and Costco is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding BURLINGTON STORES and Costco Wholesale Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Costco Wholesale Corp and BURLINGTON STORES 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 BURLINGTON STORES are associated (or correlated) with Costco Wholesale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Costco Wholesale Corp has no effect on the direction of BURLINGTON STORES i.e., BURLINGTON STORES and Costco Wholesale go up and down completely randomly.

Pair Corralation between BURLINGTON STORES and Costco Wholesale

Assuming the 90 days trading horizon BURLINGTON STORES is expected to generate 1.08 times less return on investment than Costco Wholesale. In addition to that, BURLINGTON STORES is 1.62 times more volatile than Costco Wholesale Corp. It trades about 0.1 of its total potential returns per unit of risk. Costco Wholesale Corp is currently generating about 0.17 per unit of volatility. If you would invest  79,984  in Costco Wholesale Corp on September 3, 2024 and sell it today you would earn a total of  11,606  from holding Costco Wholesale Corp or generate 14.51% return on investment over 90 days.

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

BURLINGTON STORES  vs.  Costco Wholesale Corp

BURLINGTON STORES

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BURLINGTON STORES are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady forward indicators, BURLINGTON STORES exhibited solid returns over the last few months and may actually be approaching a breakup point.

Costco Wholesale Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Costco Wholesale displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BURLINGTON STORES and Costco Wholesale

The main advantage of trading using opposite BURLINGTON STORES and Costco Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BURLINGTON STORES position performs unexpectedly, Costco Wholesale 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 Costco Wholesale will offset losses from the drop in Costco Wholesale's long position.

The idea behind BURLINGTON STORES and Costco Wholesale Corp 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.

Check out your portfolio center.

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.