Correlation Between Lululemon Athletica and Burlington Stores

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

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

Diversification Opportunities for Lululemon Athletica and Burlington Stores

0.18

Correlation Coefficient

Lululemon Athletica  Burlington Stores

Average diversification

The 3 months correlation between Lululemon and Burlington is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Lululemon Athletica and Burlington Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Burlington Stores 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 Burlington Stores. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Burlington Stores has no effect on the direction of Lululemon Athletica i.e., Lululemon Athletica and Burlington Stores go up and down completely randomly.

Pair Corralation between Lululemon Athletica and Burlington Stores

Given the investment horizon of 90 days Lululemon Athletica is expected to generate 1.66 times more return on investment than Burlington Stores. However, Lululemon Athletica is 1.66 times more volatile than Burlington Stores. It trades about 0.13 of its potential returns per unit of risk. Burlington Stores is currently generating about -0.1 per unit of risk. If you would invest  30,185  in Lululemon Athletica on November 19, 2024 and sell it today you would earn a total of  6,483  from holding Lululemon Athletica or generate 21.48% return on investment over 90 days.

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

Lululemon Athletica  vs.  Burlington Stores

Lululemon Athletica

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lululemon Athletica are ranked lower than 10 (%) 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.

Burlington Stores

Risk-Adjusted Performance

Very Weak

Over the last 90 days Burlington Stores has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Lululemon Athletica and Burlington Stores

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

The idea behind Lululemon Athletica and Burlington Stores 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.