Correlation Between Lululemon Athletica and Childrens Place

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

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

Diversification Opportunities for Lululemon Athletica and Childrens Place

0.45

Correlation Coefficient

Lululemon Athletica  Childrens Place

Very weak diversification

The 3 months correlation between Lululemon and Childrens is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Lululemon Athletica and Childrens Place in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Childrens Place 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 Childrens Place. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Childrens Place has no effect on the direction of Lululemon Athletica i.e., Lululemon Athletica and Childrens Place go up and down completely randomly.

Pair Corralation between Lululemon Athletica and Childrens Place

Given the investment horizon of 90 days Lululemon Athletica is expected to generate 6.83 times less return on investment than Childrens Place. But when comparing it to its historical volatility, Lululemon Athletica is 6.63 times less risky than Childrens Place. It trades about 0.17 of its potential returns per unit of risk. Childrens Place is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  544.00  in Childrens Place on September 1, 2024 and sell it today you would earn a total of  1,048  from holding Childrens Place or generate 192.65% return on investment over 90 days.

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

Lululemon Athletica  vs.  Childrens Place

Lululemon Athletica

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lululemon Athletica are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady essential indicators, Lululemon Athletica unveiled solid returns over the last few months and may actually be approaching a breakup point.

Childrens Place

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Childrens Place are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, Childrens Place exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lululemon Athletica and Childrens Place

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

The idea behind Lululemon Athletica and Childrens Place 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.