Correlation Between Iridium Communications and Lululemon Athletica

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

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

Diversification Opportunities for Iridium Communications and Lululemon Athletica

0.1

Correlation Coefficient

Iridium Communications  Lululemon Athletica

Average diversification

The 3 months correlation between Iridium and Lululemon is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Iridium Communications and Lululemon Athletica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lululemon Athletica and Iridium Communications 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 Iridium Communications 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 Iridium Communications i.e., Iridium Communications and Lululemon Athletica go up and down completely randomly.

Pair Corralation between Iridium Communications and Lululemon Athletica

Given the investment horizon of 90 days Iridium Communications is expected to under-perform the Lululemon Athletica. In addition to that, Iridium Communications is 1.01 times more volatile than Lululemon Athletica. It trades about -0.04 of its total potential returns per unit of risk. Lululemon Athletica is currently generating about -0.04 per unit of volatility. If you would invest  51,129  in Lululemon Athletica on September 24, 2024 and sell it today you would lose (13,025) from holding Lululemon Athletica or give up 25.47% of portfolio value over 90 days.

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

Iridium Communications  vs.  Lululemon Athletica

Iridium Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iridium Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Iridium Communications is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Lululemon Athletica

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lululemon Athletica are ranked lower than 16 (%) 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 Iridium Communications and Lululemon Athletica

The main advantage of trading using opposite Iridium Communications and Lululemon Athletica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iridium Communications 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 Iridium Communications 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.