Correlation Between Willamette Valley and Lululemon Athletica

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Can any of the company-specific risk be diversified away by investing in both Willamette Valley 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 Willamette Valley and Lululemon Athletica into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Willamette Valley Vineyards and Lululemon Athletica, you can compare the effects of market volatilities on Willamette Valley 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 Willamette Valley with a short position of Lululemon Athletica. Check out your portfolio center. Please also check ongoing floating volatility patterns of Willamette Valley and Lululemon Athletica.

Diversification Opportunities for Willamette Valley and Lululemon Athletica

-0.61
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Willamette and Lululemon is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Willamette Valley Vineyards and Lululemon Athletica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lululemon Athletica and Willamette Valley 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 Willamette Valley Vineyards 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 Willamette Valley i.e., Willamette Valley and Lululemon Athletica go up and down completely randomly.

Pair Corralation between Willamette Valley and Lululemon Athletica

Given the investment horizon of 90 days Willamette Valley is expected to generate 11.05 times less return on investment than Lululemon Athletica. But when comparing it to its historical volatility, Willamette Valley Vineyards is 1.61 times less risky than Lululemon Athletica. It trades about 0.03 of its potential returns per unit of risk. Lululemon Athletica is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  26,645  in Lululemon Athletica on October 1, 2024 and sell it today you would earn a total of  12,022  from holding Lululemon Athletica or generate 45.12% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Willamette Valley Vineyards  vs.  Lululemon Athletica

 Performance 
       Timeline  
Willamette Valley 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Willamette Valley Vineyards are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Willamette Valley is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.
Lululemon Athletica 

Risk-Adjusted Performance

17 of 100

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

Willamette Valley and Lululemon Athletica Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Willamette Valley and Lululemon Athletica

The main advantage of trading using opposite Willamette Valley and Lululemon Athletica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Willamette Valley 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 Willamette Valley Vineyards 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.

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