Correlation Between Ford and Burlington Stores

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

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

Diversification Opportunities for Ford and Burlington Stores

-0.22

Correlation Coefficient

Ford  Burlington Stores

Very good diversification

The 3 months correlation between Ford and Burlington is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Burlington Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Burlington Stores and Ford 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 Ford Motor 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 Ford i.e., Ford and Burlington Stores go up and down completely randomly.

Pair Corralation between Ford and Burlington Stores

Taking into account the 90-day investment horizon Ford is expected to generate 7.04 times less return on investment than Burlington Stores. But when comparing it to its historical volatility, Ford Motor is 1.05 times less risky than Burlington Stores. It trades about 0.01 of its potential returns per unit of risk. Burlington Stores is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  21,000  in Burlington Stores on September 29, 2024 and sell it today you would earn a total of  7,200  from holding Burlington Stores or generate 34.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Ford Motor  vs.  Burlington Stores

Ford Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ford Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Ford is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Burlington Stores

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Burlington Stores are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Burlington Stores reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Burlington Stores

The main advantage of trading using opposite Ford and Burlington Stores positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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 Ford Motor 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.