Correlation Between Lululemon Athletica and Gildan Activewear

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

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

Diversification Opportunities for Lululemon Athletica and Gildan Activewear

0.15

Correlation Coefficient

Lululemon Athletica  Gildan Activewear

Average diversification

The 3 months correlation between Lululemon and Gildan is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Lululemon Athletica and Gildan Activewear in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gildan Activewear 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 Gildan Activewear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gildan Activewear has no effect on the direction of Lululemon Athletica i.e., Lululemon Athletica and Gildan Activewear go up and down completely randomly.

Pair Corralation between Lululemon Athletica and Gildan Activewear

Given the investment horizon of 90 days Lululemon Athletica is expected to generate 5.3 times less return on investment than Gildan Activewear. In addition to that, Lululemon Athletica is 1.32 times more volatile than Gildan Activewear. It trades about 0.01 of its total potential returns per unit of risk. Gildan Activewear is currently generating about 0.1 per unit of volatility. If you would invest  2,881  in Gildan Activewear on October 5, 2024 and sell it today you would earn a total of  1,810  from holding Gildan Activewear or generate 62.83% 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.  Gildan Activewear

Lululemon Athletica

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lululemon Athletica are ranked lower than 15 (%) 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.

Gildan Activewear

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gildan Activewear has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward indicators, Gildan Activewear is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Lululemon Athletica and Gildan Activewear

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

The idea behind Lululemon Athletica and Gildan Activewear 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.

Check out your portfolio center.

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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.