Correlation Between Lululemon Athletica and Urban Outfitters

Can any of the company-specific risk be diversified away by investing in both Lululemon Athletica and Urban Outfitters 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 Urban Outfitters into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lululemon Athletica and Urban Outfitters, you can compare the effects of market volatilities on Lululemon Athletica and Urban Outfitters 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 Urban Outfitters. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lululemon Athletica and Urban Outfitters.

Diversification Opportunities for Lululemon Athletica and Urban Outfitters

0.3

Correlation Coefficient

Lululemon Athletica  Urban Outfitters

Weak diversification

The 3 months correlation between Lululemon and Urban is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Lululemon Athletica and Urban Outfitters in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Urban Outfitters 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 Urban Outfitters. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Urban Outfitters has no effect on the direction of Lululemon Athletica i.e., Lululemon Athletica and Urban Outfitters go up and down completely randomly.

Pair Corralation between Lululemon Athletica and Urban Outfitters

Given the investment horizon of 90 days Lululemon Athletica is expected to under-perform the Urban Outfitters. In addition to that, Lululemon Athletica is 1.87 times more volatile than Urban Outfitters. It trades about -0.36 of its total potential returns per unit of risk. Urban Outfitters is currently generating about -0.37 per unit of volatility. If you would invest  4,373  in Urban Outfitters on January 20, 2024 and sell it today you would lose (671.00) from holding Urban Outfitters or give up 15.34% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Lululemon Athletica  vs.  Urban Outfitters

Lululemon Athletica

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lululemon Athletica has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's essential indicators remain comparatively stable which may send shares a bit higher in May 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Urban Outfitters

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Urban Outfitters has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's fundamental drivers remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Lululemon Athletica and Urban Outfitters

The main advantage of trading using opposite Lululemon Athletica and Urban Outfitters positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lululemon Athletica position performs unexpectedly, Urban Outfitters 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 Urban Outfitters will offset losses from the drop in Urban Outfitters' long position.

The idea behind Lululemon Athletica and Urban Outfitters 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.

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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.