Correlation Between American Eagle and Lululemon Athletica

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

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

Diversification Opportunities for American Eagle and Lululemon Athletica

-0.51

Correlation Coefficient

American Eagle  Lululemon Athletica

Excellent diversification

The 3 months correlation between American and Lululemon is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding American Eagle Outfitters and Lululemon Athletica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lululemon Athletica and American Eagle 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 American Eagle Outfitters 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 American Eagle i.e., American Eagle and Lululemon Athletica go up and down completely randomly.

Pair Corralation between American Eagle and Lululemon Athletica

Considering the 90-day investment horizon American Eagle Outfitters is expected to under-perform the Lululemon Athletica. In addition to that, American Eagle is 1.04 times more volatile than Lululemon Athletica. It trades about -0.06 of its total potential returns per unit of risk. Lululemon Athletica is currently generating about 0.16 per unit of volatility. If you would invest  25,947  in Lululemon Athletica on August 30, 2024 and sell it today you would earn a total of  6,005  from holding Lululemon Athletica or generate 23.14% return on investment over 90 days.

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

American Eagle Outfitters  vs.  Lululemon Athletica

American Eagle Outfitters

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Eagle Outfitters has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Lululemon Athletica

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lululemon Athletica are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating essential indicators, Lululemon Athletica unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Eagle and Lululemon Athletica

The main advantage of trading using opposite American Eagle and Lululemon Athletica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Eagle 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 American Eagle Outfitters 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.