Correlation Between Etsy and Lulus Fashion

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

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

Diversification Opportunities for Etsy and Lulus Fashion

-0.65

Correlation Coefficient

Etsy  Lulus Fashion

Excellent diversification

The 3 months correlation between Etsy and Lulus is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Etsy Inc 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 Etsy 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 Etsy Inc 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 Etsy i.e., Etsy and Lulus Fashion go up and down completely randomly.

Pair Corralation between Etsy and Lulus Fashion

Given the investment horizon of 90 days Etsy Inc is expected to under-perform the Lulus Fashion. But the stock apears to be less risky and, when comparing its historical volatility, Etsy Inc is 2.12 times less risky than Lulus Fashion. The stock trades about -0.04 of its potential returns per unit of risk. The Lulus Fashion Lounge is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  228.00  in Lulus Fashion Lounge on September 26, 2024 and sell it today you would lose (112.00) from holding Lulus Fashion Lounge or give up 49.12% of portfolio value over 90 days.

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

Etsy Inc  vs.  Lulus Fashion Lounge

Etsy Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Etsy Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Etsy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the 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 Etsy and Lulus Fashion

The main advantage of trading using opposite Etsy and Lulus Fashion positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Etsy 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 Etsy Inc 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.