Correlation Between Lululemon Athletica and Ralph Lauren

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

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

Diversification Opportunities for Lululemon Athletica and Ralph Lauren

0.88

Correlation Coefficient

Lululemon Athletica  Ralph Lauren

Very poor diversification

The 3 months correlation between Lululemon and Ralph is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Lululemon Athletica and Ralph Lauren Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ralph Lauren Corp 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 Ralph Lauren. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ralph Lauren Corp has no effect on the direction of Lululemon Athletica i.e., Lululemon Athletica and Ralph Lauren go up and down completely randomly.

Pair Corralation between Lululemon Athletica and Ralph Lauren

Given the investment horizon of 90 days Lululemon Athletica is expected to generate 2.51 times more return on investment than Ralph Lauren. However, Lululemon Athletica is 2.51 times more volatile than Ralph Lauren Corp. It trades about 0.22 of its potential returns per unit of risk. Ralph Lauren Corp is currently generating about 0.15 per unit of risk. If you would invest  32,672  in Lululemon Athletica on September 25, 2024 and sell it today you would earn a total of  5,897  from holding Lululemon Athletica or generate 18.05% return on investment over 90 days.

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

Lululemon Athletica  vs.  Ralph Lauren Corp

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.

Ralph Lauren Corp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ralph Lauren Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain essential indicators, Ralph Lauren disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lululemon Athletica and Ralph Lauren

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

The idea behind Lululemon Athletica and Ralph Lauren Corp 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.