Correlation Between Levi Strauss and Lululemon Athletica

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

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

Diversification Opportunities for Levi Strauss and Lululemon Athletica

0.42

Correlation Coefficient

Levi Strauss  Lululemon Athletica

Very weak diversification

The 3 months correlation between Levi and Lululemon is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Levi Strauss Co and Lululemon Athletica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lululemon Athletica and Levi Strauss 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 Levi Strauss Co 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 Levi Strauss i.e., Levi Strauss and Lululemon Athletica go up and down completely randomly.

Pair Corralation between Levi Strauss and Lululemon Athletica

Given the investment horizon of 90 days Levi Strauss is expected to generate 20.72 times less return on investment than Lululemon Athletica. But when comparing it to its historical volatility, Levi Strauss Co is 1.51 times less risky than Lululemon Athletica. It trades about 0.0 of its potential returns per unit of risk. Lululemon Athletica is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  33,440  in Lululemon Athletica on December 1, 2024 and sell it today you would earn a total of  3,121  from holding Lululemon Athletica or generate 9.33% return on investment over 90 days.

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

Levi Strauss Co  vs.  Lululemon Athletica

Levi Strauss

Risk-Adjusted Performance

Very Weak

Over the last 90 days Levi Strauss Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Levi Strauss is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Lululemon Athletica

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lululemon Athletica are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating essential indicators, Lululemon Athletica may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Levi Strauss and Lululemon Athletica

The main advantage of trading using opposite Levi Strauss and Lululemon Athletica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Levi Strauss 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 Levi Strauss Co 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.