Correlation Between New Providence and Lululemon Athletica

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

By analyzing existing cross correlation between New Providence Acquisition and Lululemon Athletica, you can compare the effects of market volatilities on New Providence and Lululemon Athletica 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 New Providence with a short position of Lululemon Athletica. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Providence and Lululemon Athletica.

Diversification Opportunities for New Providence and Lululemon Athletica

0.37

Correlation Coefficient

New Providence  Lululemon Athletica

Weak diversification

The 3 months correlation between New and Lululemon is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding New Providence Acquisition and Lululemon Athletica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lululemon Athletica and New Providence 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 New Providence Acquisition are associated (or correlated) with Lululemon Athletica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lululemon Athletica has no effect on the direction of New Providence i.e., New Providence and Lululemon Athletica go up and down completely randomly.

Pair Corralation between New Providence and Lululemon Athletica

Assuming the 90 days horizon New Providence Acquisition is expected to generate 1.28 times more return on investment than Lululemon Athletica. However, New Providence is 1.28 times more volatile than Lululemon Athletica. It trades about 0.03 of its potential returns per unit of risk. Lululemon Athletica is currently generating about 0.0 per unit of risk. If you would invest  1,050  in New Providence Acquisition on October 1, 2024 and sell it today you would earn a total of  170.00  from holding New Providence Acquisition or generate 16.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	88.93%
Values	Daily Returns

New Providence Acquisition  vs.  Lululemon Athletica

New Providence Acqui

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days New Providence Acquisition has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, New Providence is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

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 unsteady essential indicators, Lululemon Athletica unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with New Providence and Lululemon Athletica

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

The idea behind New Providence Acquisition and Lululemon Athletica 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.

Check out your portfolio center.

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 Money Managers module to screen money managers from public funds and ETFs managed around the world.