Correlation Between T.J. Maxx and Burlington Stores

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

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

Diversification Opportunities for T.J. Maxx and Burlington Stores

0.7

Correlation Coefficient

T.J. Maxx  Burlington Stores

Poor diversification

The 3 months correlation between T.J. and Burlington is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding The TJX Companies and Burlington Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Burlington Stores and T.J. Maxx 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 The TJX Companies 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 T.J. Maxx i.e., T.J. Maxx and Burlington Stores go up and down completely randomly.

Pair Corralation between T.J. Maxx and Burlington Stores

Considering the 90-day investment horizon The TJX Companies is expected to generate 0.46 times more return on investment than Burlington Stores. However, The TJX Companies is 2.19 times less risky than Burlington Stores. It trades about 0.09 of its potential returns per unit of risk. Burlington Stores is currently generating about 0.02 per unit of risk. If you would invest  5,349  in The TJX Companies on January 31, 2024 and sell it today you would earn a total of  4,138  from holding The TJX Companies or generate 77.36% return on investment over 90 days.

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

The TJX Companies  vs.  Burlington Stores

TJX Companies

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days The TJX Companies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking indicators, T.J. Maxx is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Burlington Stores

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Burlington Stores has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Pair Trading with T.J. Maxx and Burlington Stores

The main advantage of trading using opposite T.J. Maxx and Burlington Stores positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if T.J. Maxx 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 The TJX Companies 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.