Correlation Between Nike and Burlington Stores

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

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

Diversification Opportunities for Nike and Burlington Stores

-0.18

Correlation Coefficient

Nike  Burlington Stores

Good diversification

The 3 months correlation between Nike and Burlington is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Nike Inc and Burlington Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Burlington Stores and Nike 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 Nike 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 Nike i.e., Nike and Burlington Stores go up and down completely randomly.

Pair Corralation between Nike and Burlington Stores

Considering the 90-day investment horizon Nike Inc is expected to under-perform the Burlington Stores. In addition to that, Nike is 1.36 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  23,339  in Burlington Stores on September 14, 2024 and sell it today you would earn a total of  5,658  from holding Burlington Stores or generate 24.24% return on investment over 90 days.

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

Nike Inc  vs.  Burlington Stores

Nike Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nike Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking signals, Nike is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Burlington Stores

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Burlington Stores are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, Burlington Stores may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Nike and Burlington Stores

The main advantage of trading using opposite Nike and Burlington Stores positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nike 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 Nike 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.