Correlation Between Nuvalent and Lululemon Athletica

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

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

Diversification Opportunities for Nuvalent and Lululemon Athletica

-0.72

Correlation Coefficient

Nuvalent  Lululemon Athletica

Pay attention - limited upside

The 3 months correlation between Nuvalent and Lululemon is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Nuvalent and Lululemon Athletica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lululemon Athletica and Nuvalent 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 Nuvalent 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 Nuvalent i.e., Nuvalent and Lululemon Athletica go up and down completely randomly.

Pair Corralation between Nuvalent and Lululemon Athletica

Given the investment horizon of 90 days Nuvalent is expected to generate 1.62 times more return on investment than Lululemon Athletica. However, Nuvalent is 1.62 times more volatile than Lululemon Athletica. It trades about 0.07 of its potential returns per unit of risk. Lululemon Athletica is currently generating about 0.03 per unit of risk. If you would invest  2,897  in Nuvalent on September 24, 2024 and sell it today you would earn a total of  5,427  from holding Nuvalent or generate 187.33% return on investment over 90 days.

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

Nuvalent  vs.  Lululemon Athletica

Nuvalent

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nuvalent has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

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.

Pair Trading with Nuvalent and Lululemon Athletica

The main advantage of trading using opposite Nuvalent and Lululemon Athletica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nuvalent 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 Nuvalent 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.

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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.