Correlation Between Gildan Activewear and Lululemon Athletica

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

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

Diversification Opportunities for Gildan Activewear and Lululemon Athletica

0.15

Correlation Coefficient

Gildan Activewear  Lululemon Athletica

Average diversification

The 3 months correlation between Gildan and Lululemon is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Gildan Activewear and Lululemon Athletica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lululemon Athletica and Gildan Activewear 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 Gildan Activewear 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 Gildan Activewear i.e., Gildan Activewear and Lululemon Athletica go up and down completely randomly.

Pair Corralation between Gildan Activewear and Lululemon Athletica

Considering the 90-day investment horizon Gildan Activewear is expected to generate 0.76 times more return on investment than Lululemon Athletica. However, Gildan Activewear is 1.32 times less risky than Lululemon Athletica. It trades about 0.1 of its potential returns per unit of risk. Lululemon Athletica is currently generating about 0.01 per unit of risk. If you would invest  2,881  in Gildan Activewear on October 5, 2024 and sell it today you would earn a total of  1,810  from holding Gildan Activewear or generate 62.83% return on investment over 90 days.

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

Gildan Activewear  vs.  Lululemon Athletica

Gildan Activewear

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gildan Activewear has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward indicators, Gildan Activewear is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Lululemon Athletica

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lululemon Athletica are ranked lower than 15 (%) 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 Gildan Activewear and Lululemon Athletica

The main advantage of trading using opposite Gildan Activewear and Lululemon Athletica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gildan Activewear 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 Gildan Activewear 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.