Correlation Between Lululemon Athletica and MGIC Investment

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

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

Diversification Opportunities for Lululemon Athletica and MGIC Investment

-0.18

Correlation Coefficient

Lululemon Athletica  MGIC Investment

Good diversification

The 3 months correlation between Lululemon and MGIC is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Lululemon Athletica and MGIC Investment Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MGIC Investment Corp 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 MGIC Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MGIC Investment Corp has no effect on the direction of Lululemon Athletica i.e., Lululemon Athletica and MGIC Investment go up and down completely randomly.

Pair Corralation between Lululemon Athletica and MGIC Investment

Given the investment horizon of 90 days Lululemon Athletica is expected to under-perform the MGIC Investment. In addition to that, Lululemon Athletica is 1.69 times more volatile than MGIC Investment Corp. It trades about 0.0 of its total potential returns per unit of risk. MGIC Investment Corp is currently generating about 0.1 per unit of volatility. If you would invest  1,720  in MGIC Investment Corp on September 15, 2024 and sell it today you would earn a total of  735.00  from holding MGIC Investment Corp or generate 42.73% 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.  MGIC Investment Corp

Lululemon Athletica

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lululemon Athletica are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating essential indicators, Lululemon Athletica unveiled solid returns over the last few months and may actually be approaching a breakup point.

MGIC Investment Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MGIC Investment Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, MGIC Investment is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Lululemon Athletica and MGIC Investment

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

The idea behind Lululemon Athletica and MGIC Investment Corp 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.