Correlation Between Lululemon Athletica and Industria

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

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

Diversification Opportunities for Lululemon Athletica and Industria

-0.43

Correlation Coefficient

Lululemon Athletica  Industria

Very good diversification

The 3 months correlation between Lululemon and Industria is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Lululemon Athletica and Industria de Diseo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industria de Diseo 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 Industria. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industria de Diseo has no effect on the direction of Lululemon Athletica i.e., Lululemon Athletica and Industria go up and down completely randomly.

Pair Corralation between Lululemon Athletica and Industria

Given the investment horizon of 90 days Lululemon Athletica is expected to generate 1.14 times more return on investment than Industria. However, Lululemon Athletica is 1.14 times more volatile than Industria de Diseo. It trades about 0.22 of its potential returns per unit of risk. Industria de Diseo is currently generating about -0.03 per unit of risk. If you would invest  25,974  in Lululemon Athletica on September 25, 2024 and sell it today you would earn a total of  12,375  from holding Lululemon Athletica or generate 47.64% 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.  Industria de Diseo

Lululemon Athletica

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lululemon Athletica are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain essential indicators, Lululemon Athletica unveiled solid returns over the last few months and may actually be approaching a breakup point.

Industria de Diseo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Industria de Diseo has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Industria is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Lululemon Athletica and Industria

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

The idea behind Lululemon Athletica and Industria de Diseo 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.