Correlation Between Childrens Place and Lululemon Athletica

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

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

Diversification Opportunities for Childrens Place and Lululemon Athletica

0.44

Correlation Coefficient

Childrens Place  Lululemon Athletica

Very weak diversification

The 3 months correlation between Childrens and Lululemon is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Childrens Place and Lululemon Athletica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lululemon Athletica and Childrens Place 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 Childrens Place 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 Childrens Place i.e., Childrens Place and Lululemon Athletica go up and down completely randomly.

Pair Corralation between Childrens Place and Lululemon Athletica

Given the investment horizon of 90 days Childrens Place is expected to generate 1.93 times more return on investment than Lululemon Athletica. However, Childrens Place is 1.93 times more volatile than Lululemon Athletica. It trades about 0.21 of its potential returns per unit of risk. Lululemon Athletica is currently generating about 0.09 per unit of risk. If you would invest  1,315  in Childrens Place on August 30, 2024 and sell it today you would earn a total of  300.00  from holding Childrens Place or generate 22.81% return on investment over 90 days.

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

Childrens Place  vs.  Lululemon Athletica

Childrens Place

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Childrens Place are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, Childrens Place exhibited solid returns over the last few months and may actually be approaching a breakup point.

Lululemon Athletica

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lululemon Athletica are ranked lower than 12 (%) 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.

Pair Trading with Childrens Place and Lululemon Athletica

The main advantage of trading using opposite Childrens Place and Lululemon Athletica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Childrens Place 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 Childrens Place 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.