Correlation Between Lululemon Athletica and Genesco

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

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

Diversification Opportunities for Lululemon Athletica and Genesco

0.86

Correlation Coefficient

Lululemon Athletica  Genesco

Very poor diversification

The 3 months correlation between Lululemon and Genesco is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Lululemon Athletica and Genesco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Genesco 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 Genesco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Genesco has no effect on the direction of Lululemon Athletica i.e., Lululemon Athletica and Genesco go up and down completely randomly.

Pair Corralation between Lululemon Athletica and Genesco

Given the investment horizon of 90 days Lululemon Athletica is expected to generate 0.73 times more return on investment than Genesco. However, Lululemon Athletica is 1.38 times less risky than Genesco. It trades about -0.19 of its potential returns per unit of risk. Genesco is currently generating about -0.17 per unit of risk. If you would invest  40,290  in Lululemon Athletica on November 28, 2024 and sell it today you would lose (3,332) from holding Lululemon Athletica or give up 8.27% of portfolio value over 90 days.

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

Lululemon Athletica  vs.  Genesco

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.

Genesco

Risk-Adjusted Performance

Modest

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

Pair Trading with Lululemon Athletica and Genesco

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

The idea behind Lululemon Athletica and Genesco 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.