Correlation Between Best Buy and Lulus Fashion

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

By analyzing existing cross correlation between Best Buy Co and Lulus Fashion Lounge, you can compare the effects of market volatilities on Best Buy and Lulus Fashion 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 Best Buy with a short position of Lulus Fashion. Check out your portfolio center. Please also check ongoing floating volatility patterns of Best Buy and Lulus Fashion.

Diversification Opportunities for Best Buy and Lulus Fashion

0.74

Correlation Coefficient

Best Buy  Lulus Fashion

Poor diversification

The 3 months correlation between Best and Lulus is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Best Buy Co and Lulus Fashion Lounge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lulus Fashion Lounge and Best Buy 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 Best Buy Co are associated (or correlated) with Lulus Fashion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lulus Fashion Lounge has no effect on the direction of Best Buy i.e., Best Buy and Lulus Fashion go up and down completely randomly.

Pair Corralation between Best Buy and Lulus Fashion

Considering the 90-day investment horizon Best Buy Co is expected to generate 0.32 times more return on investment than Lulus Fashion. However, Best Buy Co is 3.16 times less risky than Lulus Fashion. It trades about 0.03 of its potential returns per unit of risk. Lulus Fashion Lounge is currently generating about 0.01 per unit of risk. If you would invest  7,437  in Best Buy Co on September 26, 2024 and sell it today you would earn a total of  1,248  from holding Best Buy Co or generate 16.78% return on investment over 90 days.

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

Best Buy Co  vs.  Lulus Fashion Lounge

Best Buy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Best Buy Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Lulus Fashion Lounge

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lulus Fashion Lounge has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's essential indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Best Buy and Lulus Fashion

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

The idea behind Best Buy Co and Lulus Fashion Lounge 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..