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 Gap Inc, 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
-0.46 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Lululemon and Gap is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Lululemon Athletica and Gap Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gap Inc 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 Inc 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
Given the investment horizon of 90 days Lululemon Athletica is expected to generate 10.95 times less return on investment than Gap. But when comparing it to its historical volatility, Lululemon Athletica is 1.66 times less risky than Gap. It trades about 0.01 of its potential returns per unit of risk. Gap Inc is currently generating about 0.07 of returns per unit of risk over similar time horizon. 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 |
Lululemon Athletica vs. Gap Inc
Performance |
| Timeline |
| Lululemon Athletica |
| Gap Inc |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
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. 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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