Correlation Between Bank of New York and Lululemon Athletica

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

By analyzing existing cross correlation between Bank of New and Lululemon Athletica, you can compare the effects of market volatilities on Bank of New York 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 Bank of New York with a short position of Lululemon Athletica. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of New York and Lululemon Athletica.

Diversification Opportunities for Bank of New York and Lululemon Athletica

0.74

Correlation Coefficient

Bank of New York  Lululemon Athletica

Poor diversification

The 3 months correlation between Bank and Lululemon is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Bank of New and Lululemon Athletica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lululemon Athletica and Bank of New York 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 Bank of New 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 Bank of New York i.e., Bank of New York and Lululemon Athletica go up and down completely randomly.

Pair Corralation between Bank of New York and Lululemon Athletica

Allowing for the 90-day total investment horizon Bank of New is expected to under-perform the Lululemon Athletica. But the stock apears to be less risky and, when comparing its historical volatility, Bank of New is 3.69 times less risky than Lululemon Athletica. The stock trades about -0.2 of its potential returns per unit of risk. The Lululemon Athletica is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  32,672  in Lululemon Athletica on September 24, 2024 and sell it today you would earn a total of  5,432  from holding Lululemon Athletica or generate 16.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Bank of New  vs.  Lululemon Athletica

Bank of New York

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of New are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain forward-looking signals, Bank of New York may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Lululemon Athletica

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lululemon Athletica are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain essential indicators, Lululemon Athletica unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of New York and Lululemon Athletica

The main advantage of trading using opposite Bank of New York and Lululemon Athletica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of New York 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.

The idea behind Bank of New and Lululemon Athletica 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .