Correlation Between Lululemon Athletica and Japan Exchange

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

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

Diversification Opportunities for Lululemon Athletica and Japan Exchange

-0.34

Correlation Coefficient

Lululemon Athletica  Japan Exchange

Very good diversification

The 3 months correlation between Lululemon and Japan is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Lululemon Athletica and Japan Exchange Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Exchange Group 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 Japan Exchange. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Exchange Group has no effect on the direction of Lululemon Athletica i.e., Lululemon Athletica and Japan Exchange go up and down completely randomly.

Pair Corralation between Lululemon Athletica and Japan Exchange

Given the investment horizon of 90 days Lululemon Athletica is expected to generate 1.55 times more return on investment than Japan Exchange. However, Lululemon Athletica is 1.55 times more volatile than Japan Exchange Group. It trades about 0.21 of its potential returns per unit of risk. Japan Exchange Group is currently generating about -0.08 per unit of risk. If you would invest  26,355  in Lululemon Athletica on September 24, 2024 and sell it today you would earn a total of  11,994  from holding Lululemon Athletica or generate 45.51% return on investment over 90 days.

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

Lululemon Athletica  vs.  Japan Exchange Group

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.

Japan Exchange Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Japan Exchange Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Lululemon Athletica and Japan Exchange

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

The idea behind Lululemon Athletica and Japan Exchange Group 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.