Correlation Between Lululemon Athletica and Gap
Can any of the company-specific risk be diversified away by investing in both Lululemon Athletica and Gap 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 Gap 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 Gap, you can compare the effects of market volatilities on Lululemon Athletica and Gap 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 Gap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lululemon Athletica and Gap.
Diversification Opportunities for Lululemon Athletica and Gap
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Lululemon and Gap is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Lululemon Athletica and The Gap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gap 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 Gap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gap has no effect on the direction of Lululemon Athletica i.e., Lululemon Athletica and Gap go up and down completely randomly.
Pair Corralation between Lululemon Athletica and Gap
Assuming the 90 days horizon Lululemon Athletica is expected to generate 1.78 times less return on investment than Gap. But when comparing it to its historical volatility, Lululemon Athletica is 2.19 times less risky than Gap. It trades about 0.17 of its potential returns per unit of risk. The Gap is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 1,949 in The Gap on September 1, 2024 and sell it today you would earn a total of 325.00 from holding The Gap or generate 16.68% 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. The Gap
Performance |
| Timeline |
| Lululemon Athletica |
| Gap |
Lululemon Athletica and Gap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lululemon Athletica and Gap
The main advantage of trading using opposite Lululemon Athletica and Gap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lululemon Athletica position performs unexpectedly, Gap 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 Gap will offset losses from the drop in Gap's long position.| Lululemon Athletica vs. Superior Plus Corp | Lululemon Athletica vs. Origin Agritech | Lululemon Athletica vs. Identiv | Lululemon Athletica vs. INTUITIVE SURGICAL |
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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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