Correlation Between Lululemon Athletica and Xponential Fitness

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

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

Diversification Opportunities for Lululemon Athletica and Xponential Fitness

0.64

Correlation Coefficient

Lululemon Athletica  Xponential Fitness

Poor diversification

The 3 months correlation between Lululemon and Xponential is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Lululemon Athletica and Xponential Fitness in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xponential Fitness 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 Xponential Fitness. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xponential Fitness has no effect on the direction of Lululemon Athletica i.e., Lululemon Athletica and Xponential Fitness go up and down completely randomly.

Pair Corralation between Lululemon Athletica and Xponential Fitness

Given the investment horizon of 90 days Lululemon Athletica is expected to generate 0.62 times more return on investment than Xponential Fitness. However, Lululemon Athletica is 1.61 times less risky than Xponential Fitness. It trades about 0.21 of its potential returns per unit of risk. Xponential Fitness is currently generating about 0.05 per unit of risk. If you would invest  26,355  in Lululemon Athletica on September 24, 2024 and sell it today you would earn a total of  11,587  from holding Lululemon Athletica or generate 43.97% return on investment over 90 days.

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

Lululemon Athletica  vs.  Xponential Fitness

Lululemon Athletica

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lululemon Athletica are ranked lower than 16 (%) 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.

Xponential Fitness

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Xponential Fitness are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Xponential Fitness reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lululemon Athletica and Xponential Fitness

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

The idea behind Lululemon Athletica and Xponential Fitness 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.