Correlation Between Lululemon Athletica and Smith Micro
Can any of the company-specific risk be diversified away by investing in both Lululemon Athletica and Smith Micro 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 Smith Micro into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lululemon Athletica and Smith Micro Software, you can compare the effects of market volatilities on Lululemon Athletica and Smith Micro 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 Smith Micro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lululemon Athletica and Smith Micro.
Diversification Opportunities for Lululemon Athletica and Smith Micro
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Lululemon and Smith is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Lululemon Athletica and Smith Micro Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith Micro Software 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 Smith Micro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith Micro Software has no effect on the direction of Lululemon Athletica i.e., Lululemon Athletica and Smith Micro go up and down completely randomly.
Pair Corralation between Lululemon Athletica and Smith Micro
Given the investment horizon of 90 days Lululemon Athletica is expected to generate 0.27 times more return on investment than Smith Micro. However, Lululemon Athletica is 3.71 times less risky than Smith Micro. It trades about 0.04 of its potential returns per unit of risk. Smith Micro Software is currently generating about -0.04 per unit of risk. If you would invest 31,708 in Lululemon Athletica on November 2, 2024 and sell it today you would earn a total of 10,408 from holding Lululemon Athletica or generate 32.82% 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. Smith Micro Software
Performance |
| Timeline |
| Lululemon Athletica |
| Smith Micro Software |
Lululemon Athletica and Smith Micro Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lululemon Athletica and Smith Micro
The main advantage of trading using opposite Lululemon Athletica and Smith Micro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lululemon Athletica position performs unexpectedly, Smith Micro 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 Smith Micro will offset losses from the drop in Smith Micro's long position.| Lululemon Athletica vs. American Eagle Outfitters | Lululemon Athletica vs. Abercrombie Fitch | Lululemon Athletica vs. Urban Outfitters | Lululemon Athletica vs. Foot Locker |
| Smith Micro vs. Dubber Limited | Smith Micro vs. Advanced Health Intelligence | Smith Micro vs. Danavation Technologies Corp | Smith Micro vs. BASE 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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