Correlation Between Burlington Stores and Vale SA

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

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

Diversification Opportunities for Burlington Stores and Vale SA

-0.74

Correlation Coefficient

Burlington Stores  Vale SA

Pay attention - limited upside

The 3 months correlation between Burlington and Vale is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Burlington Stores and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA 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 Vale SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale SA has no effect on the direction of Burlington Stores i.e., Burlington Stores and Vale SA go up and down completely randomly.

Pair Corralation between Burlington Stores and Vale SA

Assuming the 90 days trading horizon Burlington Stores is expected to generate 2.73 times more return on investment than Vale SA. However, Burlington Stores is 2.73 times more volatile than Vale SA. It trades about 0.12 of its potential returns per unit of risk. Vale SA is currently generating about -0.19 per unit of risk. If you would invest  425,300  in Burlington Stores on September 27, 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 Against
Strength	Weak
Accuracy	95.08%
Values	Daily Returns

Burlington Stores  vs.  Vale SA

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.

Vale SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vale SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Burlington Stores and Vale SA

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

The idea behind Burlington Stores and Vale SA 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.