Correlation Between Lululemon Athletica and Abercrombie Fitch
Can any of the company-specific risk be diversified away by investing in both Lululemon Athletica and Abercrombie Fitch 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 Abercrombie Fitch into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lululemon Athletica and Abercrombie Fitch, you can compare the effects of market volatilities on Lululemon Athletica and Abercrombie Fitch 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 Abercrombie Fitch. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lululemon Athletica and Abercrombie Fitch.
Diversification Opportunities for Lululemon Athletica and Abercrombie Fitch
-0.03 | Correlation Coefficient |
Good diversification
The 3 months correlation between Lululemon and Abercrombie is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Lululemon Athletica and Abercrombie Fitch in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abercrombie Fitch 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 Abercrombie Fitch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Abercrombie Fitch has no effect on the direction of Lululemon Athletica i.e., Lululemon Athletica and Abercrombie Fitch go up and down completely randomly.
Pair Corralation between Lululemon Athletica and Abercrombie Fitch
Given the investment horizon of 90 days Lululemon Athletica is expected to under-perform the Abercrombie Fitch. But the stock apears to be less risky and, when comparing its historical volatility, Lululemon Athletica is 1.21 times less risky than Abercrombie Fitch. The stock trades about -0.15 of its potential returns per unit of risk. The Abercrombie Fitch is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 10,380 in Abercrombie Fitch on January 26, 2024 and sell it today you would earn a total of 1,129 from holding Abercrombie Fitch or generate 10.88% 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. Abercrombie Fitch
Performance |
| Timeline |
| Lululemon Athletica |
| Abercrombie Fitch |
Lululemon Athletica and Abercrombie Fitch Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lululemon Athletica and Abercrombie Fitch
The main advantage of trading using opposite Lululemon Athletica and Abercrombie Fitch positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lululemon Athletica position performs unexpectedly, Abercrombie Fitch 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 Abercrombie Fitch will offset losses from the drop in Abercrombie Fitch's long position.| Lululemon Athletica vs. Ermenegildo Zegna NV | Lululemon Athletica vs. G III Apparel Group | Lululemon Athletica vs. Oxford Industries |
| Abercrombie Fitch vs. Shoe Carnival | Abercrombie Fitch vs. Hibbett Sports | Abercrombie Fitch vs. Zumiez Inc | Abercrombie Fitch vs. Tillys Inc |
Check out your portfolio center.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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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