Correlation Between Lululemon Athletica and GMS

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

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

Diversification Opportunities for Lululemon Athletica and GMS

-0.57

Correlation Coefficient

Lululemon Athletica  GMS

Excellent diversification

The 3 months correlation between Lululemon and GMS is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Lululemon Athletica and GMS Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMS Inc 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 GMS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMS Inc has no effect on the direction of Lululemon Athletica i.e., Lululemon Athletica and GMS go up and down completely randomly.

Pair Corralation between Lululemon Athletica and GMS

Given the investment horizon of 90 days Lululemon Athletica is expected to under-perform the GMS. In addition to that, Lululemon Athletica is 1.29 times more volatile than GMS Inc. It trades about -0.08 of its total potential returns per unit of risk. GMS Inc is currently generating about 0.01 per unit of volatility. If you would invest  8,597  in GMS Inc on October 23, 2024 and sell it today you would earn a total of  14.00  from holding GMS Inc or generate 0.16% return on investment over 90 days.

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

Lululemon Athletica  vs.  GMS Inc

Lululemon Athletica

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lululemon Athletica are ranked lower than 11 (%) 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.

GMS Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GMS Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, GMS is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Lululemon Athletica and GMS

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

The idea behind Lululemon Athletica and GMS Inc 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.