Correlation Between Burlington Stores and CenterPoint Energy

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

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

Diversification Opportunities for Burlington Stores and CenterPoint Energy

0.8

Correlation Coefficient

Burlington Stores  CenterPoint Energy

Very poor diversification

The 3 months correlation between Burlington and CenterPoint is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Burlington Stores and CenterPoint Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CenterPoint Energy 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 CenterPoint Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CenterPoint Energy has no effect on the direction of Burlington Stores i.e., Burlington Stores and CenterPoint Energy go up and down completely randomly.

Pair Corralation between Burlington Stores and CenterPoint Energy

Given the investment horizon of 90 days Burlington Stores is expected to generate 2.37 times less return on investment than CenterPoint Energy. In addition to that, Burlington Stores is 1.51 times more volatile than CenterPoint Energy. It trades about 0.05 of its total potential returns per unit of risk. CenterPoint Energy is currently generating about 0.17 per unit of volatility. If you would invest  2,843  in CenterPoint Energy on September 25, 2024 and sell it today you would earn a total of  396.00  from holding CenterPoint Energy or generate 13.93% return on investment over 90 days.

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

Burlington Stores  vs.  CenterPoint Energy

Burlington Stores

Risk-Adjusted Performance

3 of 100

Weak

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

CenterPoint Energy

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CenterPoint Energy are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, CenterPoint Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Burlington Stores and CenterPoint Energy

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

The idea behind Burlington Stores and CenterPoint Energy 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.