Correlation Between Childrens Place and Lululemon Athletica
Can any of the company-specific risk be diversified away by investing in both Childrens Place 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 Childrens Place and Lululemon Athletica into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Childrens Place and Lululemon Athletica, you can compare the effects of market volatilities on Childrens Place 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 Childrens Place with a short position of Lululemon Athletica. Check out your portfolio center. Please also check ongoing floating volatility patterns of Childrens Place and Lululemon Athletica.
Diversification Opportunities for Childrens Place and Lululemon Athletica
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Childrens and Lululemon is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Childrens Place and Lululemon Athletica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lululemon Athletica and Childrens Place 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 Childrens Place 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 Childrens Place i.e., Childrens Place and Lululemon Athletica go up and down completely randomly.
Pair Corralation between Childrens Place and Lululemon Athletica
Given the investment horizon of 90 days Childrens Place is expected to generate 3.8 times more return on investment than Lululemon Athletica. However, Childrens Place is 3.8 times more volatile than Lululemon Athletica. It trades about 0.02 of its potential returns per unit of risk. Lululemon Athletica is currently generating about -0.01 per unit of risk. If you would invest 3,579 in Childrens Place on August 24, 2024 and sell it today you would lose (1,949) from holding Childrens Place or give up 54.46% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Childrens Place vs. Lululemon Athletica
Performance |
| Timeline |
| Childrens Place |
| Lululemon Athletica |
Childrens Place and Lululemon Athletica Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Childrens Place and Lululemon Athletica
The main advantage of trading using opposite Childrens Place and Lululemon Athletica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Childrens Place 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.| Childrens Place vs. Ross Stores | Childrens Place vs. Buckle Inc | Childrens Place vs. Guess Inc | Childrens Place vs. Abercrombie Fitch |
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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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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