Correlation Between Lululemon Athletica and IPG Photonics
Can any of the company-specific risk be diversified away by investing in both Lululemon Athletica and IPG Photonics 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 IPG Photonics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lululemon Athletica and IPG Photonics, you can compare the effects of market volatilities on Lululemon Athletica and IPG Photonics 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 IPG Photonics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lululemon Athletica and IPG Photonics.
Diversification Opportunities for Lululemon Athletica and IPG Photonics
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Lululemon and IPG is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Lululemon Athletica and IPG Photonics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IPG Photonics 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 IPG Photonics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IPG Photonics has no effect on the direction of Lululemon Athletica i.e., Lululemon Athletica and IPG Photonics go up and down completely randomly.
Pair Corralation between Lululemon Athletica and IPG Photonics
Given the investment horizon of 90 days Lululemon Athletica is expected to generate 1.03 times more return on investment than IPG Photonics. However, Lululemon Athletica is 1.03 times more volatile than IPG Photonics. It trades about -0.02 of its potential returns per unit of risk. IPG Photonics is currently generating about -0.03 per unit of risk. If you would invest 35,024 in Lululemon Athletica on September 3, 2024 and sell it today you would lose (2,958) from holding Lululemon Athletica or give up 8.45% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lululemon Athletica vs. IPG Photonics
Performance |
| Timeline |
| Lululemon Athletica |
| IPG Photonics |
Lululemon Athletica and IPG Photonics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lululemon Athletica and IPG Photonics
The main advantage of trading using opposite Lululemon Athletica and IPG Photonics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lululemon Athletica position performs unexpectedly, IPG Photonics 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 IPG Photonics will offset losses from the drop in IPG Photonics' long position.| Lululemon Athletica vs. American Eagle Outfitters | Lululemon Athletica vs. Abercrombie Fitch | Lululemon Athletica vs. Urban Outfitters | Lululemon Athletica vs. Foot Locker |
| IPG Photonics vs. Teradyne | IPG Photonics vs. Ultra Clean Holdings | IPG Photonics vs. Onto Innovation | IPG Photonics vs. Cohu Inc |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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