Correlation Between Citi Trends and Lululemon Athletica

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

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

Diversification Opportunities for Citi Trends and Lululemon Athletica

0.83

Correlation Coefficient

Citi Trends  Lululemon Athletica

Very poor diversification

The 3 months correlation between Citi and Lululemon is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Citi Trends and Lululemon Athletica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lululemon Athletica and Citi Trends 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 Citi Trends 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 Citi Trends i.e., Citi Trends and Lululemon Athletica go up and down completely randomly.

Pair Corralation between Citi Trends and Lululemon Athletica

Given the investment horizon of 90 days Citi Trends is expected to generate 1.2 times more return on investment than Lululemon Athletica. However, Citi Trends is 1.2 times more volatile than Lululemon Athletica. It trades about 0.31 of its potential returns per unit of risk. Lululemon Athletica is currently generating about 0.22 per unit of risk. If you would invest  1,957  in Citi Trends on September 25, 2024 and sell it today you would earn a total of  639.00  from holding Citi Trends or generate 32.65% return on investment over 90 days.

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

Citi Trends  vs.  Lululemon Athletica

Citi Trends

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citi Trends are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Citi Trends displayed solid returns over the last few months and may actually be approaching a breakup point.

Lululemon Athletica

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lululemon Athletica are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain essential indicators, Lululemon Athletica unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citi Trends and Lululemon Athletica

The main advantage of trading using opposite Citi Trends and Lululemon Athletica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Citi Trends 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 Citi Trends 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.