Correlation Between Xenia Hotels and Lululemon Athletica

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

By analyzing existing cross correlation between Xenia Hotels Resorts and Lululemon Athletica, you can compare the effects of market volatilities on Xenia Hotels and Lululemon Athletica 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 Xenia Hotels with a short position of Lululemon Athletica. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xenia Hotels and Lululemon Athletica.

Diversification Opportunities for Xenia Hotels and Lululemon Athletica

0.36

Correlation Coefficient

Xenia Hotels  Lululemon Athletica

Weak diversification

The 3 months correlation between Xenia and Lululemon is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Xenia Hotels Resorts and Lululemon Athletica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lululemon Athletica and Xenia Hotels 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 Xenia Hotels Resorts are associated (or correlated) with Lululemon Athletica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lululemon Athletica has no effect on the direction of Xenia Hotels i.e., Xenia Hotels and Lululemon Athletica go up and down completely randomly.

Pair Corralation between Xenia Hotels and Lululemon Athletica

Assuming the 90 days trading horizon Xenia Hotels Resorts is expected to under-perform the Lululemon Athletica. But the stock apears to be less risky and, when comparing its historical volatility, Xenia Hotels Resorts is 1.59 times less risky than Lululemon Athletica. The stock trades about -0.06 of its potential returns per unit of risk. The Lululemon Athletica is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  36,835  in Lululemon Athletica on October 27, 2024 and sell it today you would earn a total of  1,165  from holding Lululemon Athletica or generate 3.16% return on investment over 90 days.

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

Xenia Hotels Resorts  vs.  Lululemon Athletica

Xenia Hotels Resorts

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Xenia Hotels Resorts are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical indicators, Xenia Hotels may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Lululemon Athletica

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with Xenia Hotels and Lululemon Athletica

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

The idea behind Xenia Hotels Resorts and Lululemon Athletica 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.