Correlation Between Gap and Lululemon Athletica
Can any of the company-specific risk be diversified away by investing in both Gap 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 Gap and Lululemon Athletica into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Gap Inc and Lululemon Athletica, you can compare the effects of market volatilities on Gap 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 Gap with a short position of Lululemon Athletica. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gap and Lululemon Athletica.
Diversification Opportunities for Gap and Lululemon Athletica
-0.46 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Gap and Lululemon is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Gap Inc and Lululemon Athletica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lululemon Athletica and Gap 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 Gap Inc 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 Gap i.e., Gap and Lululemon Athletica go up and down completely randomly.
Pair Corralation between Gap and Lululemon Athletica
Considering the 90-day investment horizon Gap Inc is expected to generate 1.66 times more return on investment than Lululemon Athletica. However, Gap is 1.66 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 0.01 per unit of risk. If you would invest 1,103 in Gap Inc on August 28, 2024 and sell it today you would earn a total of 1,225 from holding Gap Inc or generate 111.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 86.76% |
| Values | Daily Returns |
Gap Inc vs. Lululemon Athletica
Performance |
| Timeline |
| Gap Inc |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Lululemon Athletica |
Gap and Lululemon Athletica Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Gap and Lululemon Athletica
The main advantage of trading using opposite Gap and Lululemon Athletica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gap 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 Gap Inc 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.| Lululemon Athletica vs. VF Corporation | Lululemon Athletica vs. Levi Strauss Co | Lululemon Athletica vs. Under Armour A | Lululemon Athletica vs. Oxford Industries |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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