Correlation Between Lululemon Athletica and Sonos

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

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

Diversification Opportunities for Lululemon Athletica and Sonos

0.9

Correlation Coefficient

Lululemon Athletica  Sonos

Almost no diversification

The 3 months correlation between Lululemon and Sonos is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Lululemon Athletica and Sonos Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonos Inc 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 Sonos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonos Inc has no effect on the direction of Lululemon Athletica i.e., Lululemon Athletica and Sonos go up and down completely randomly.

Pair Corralation between Lululemon Athletica and Sonos

Given the investment horizon of 90 days Lululemon Athletica is expected to generate 1.21 times more return on investment than Sonos. However, Lululemon Athletica is 1.21 times more volatile than Sonos Inc. It trades about 0.2 of its potential returns per unit of risk. Sonos Inc is currently generating about 0.1 per unit of risk. If you would invest  26,261  in Lululemon Athletica on September 20, 2024 and sell it today you would earn a total of  11,101  from holding Lululemon Athletica or generate 42.27% return on investment over 90 days.

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

Lululemon Athletica  vs.  Sonos Inc

Lululemon Athletica

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lululemon Athletica are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent essential indicators, Lululemon Athletica unveiled solid returns over the last few months and may actually be approaching a breakup point.

Sonos Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sonos Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Sonos displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lululemon Athletica and Sonos

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

The idea behind Lululemon Athletica and Sonos Inc 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.