Correlation Between Lululemon Athletica and T.J. Maxx

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

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

Diversification Opportunities for Lululemon Athletica and T.J. Maxx

0.72

Correlation Coefficient

Lululemon Athletica  T.J. Maxx

Poor diversification

The 3 months correlation between Lululemon and T.J. is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Lululemon Athletica and The TJX Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TJX Companies 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 T.J. Maxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TJX Companies has no effect on the direction of Lululemon Athletica i.e., Lululemon Athletica and T.J. Maxx go up and down completely randomly.

Pair Corralation between Lululemon Athletica and T.J. Maxx

Given the investment horizon of 90 days Lululemon Athletica is expected to generate 1.53 times less return on investment than T.J. Maxx. In addition to that, Lululemon Athletica is 2.19 times more volatile than The TJX Companies. It trades about 0.03 of its total potential returns per unit of risk. The TJX Companies is currently generating about 0.09 per unit of volatility. If you would invest  7,756  in The TJX Companies on September 25, 2024 and sell it today you would earn a total of  4,421  from holding The TJX Companies or generate 57.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Lululemon Athletica  vs.  The TJX Companies

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.

TJX Companies

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The TJX Companies are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward-looking indicators, T.J. Maxx is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lululemon Athletica and T.J. Maxx

The main advantage of trading using opposite Lululemon Athletica and T.J. Maxx positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lululemon Athletica position performs unexpectedly, T.J. Maxx 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 T.J. Maxx will offset losses from the drop in T.J. Maxx's long position.

The idea behind Lululemon Athletica and The TJX Companies 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.