Correlation Between Lululemon Athletica and Abercrombie Fitch

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

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

Diversification Opportunities for Lululemon Athletica and Abercrombie Fitch

-0.31

Correlation Coefficient

Lululemon Athletica  Abercrombie Fitch

Very good diversification

The 3 months correlation between Lululemon and Abercrombie is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Lululemon Athletica and Abercrombie Fitch in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abercrombie Fitch and Lululemon Athletica 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 Lululemon Athletica are associated (or correlated) with Abercrombie Fitch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Abercrombie Fitch has no effect on the direction of Lululemon Athletica i.e., Lululemon Athletica and Abercrombie Fitch go up and down completely randomly.

Pair Corralation between Lululemon Athletica and Abercrombie Fitch

Given the investment horizon of 90 days Lululemon Athletica is expected to generate 0.81 times more return on investment than Abercrombie Fitch. However, Lululemon Athletica is 1.24 times less risky than Abercrombie Fitch. It trades about 0.1 of its potential returns per unit of risk. Abercrombie Fitch is currently generating about -0.16 per unit of risk. If you would invest  32,066  in Lululemon Athletica on November 28, 2024 and sell it today you would earn a total of  4,892  from holding Lululemon Athletica or generate 15.26% return on investment over 90 days.

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

Lululemon Athletica  vs.  Abercrombie Fitch

Lululemon Athletica

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lululemon Athletica are ranked lower than 7 (%) 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.

Abercrombie Fitch

Risk-Adjusted Performance

Very Weak

Over the last 90 days Abercrombie Fitch has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Lululemon Athletica and Abercrombie Fitch

The main advantage of trading using opposite Lululemon Athletica and Abercrombie Fitch positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lululemon Athletica position performs unexpectedly, Abercrombie Fitch 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 Abercrombie Fitch will offset losses from the drop in Abercrombie Fitch's long position.

The idea behind Lululemon Athletica and Abercrombie Fitch 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .