Correlation Between Advance Auto and Ulta Beauty

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Can any of the company-specific risk be diversified away by investing in both Advance Auto and Ulta Beauty 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 Advance Auto and Ulta Beauty into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Advance Auto Parts and Ulta Beauty, you can compare the effects of market volatilities on Advance Auto and Ulta Beauty 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 Advance Auto with a short position of Ulta Beauty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advance Auto and Ulta Beauty.

Diversification Opportunities for Advance Auto and Ulta Beauty

0.11
  Correlation Coefficient

Average diversification

The 3 months correlation between Advance and Ulta Beauty is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Advance Auto Parts and Ulta Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ulta Beauty and Advance Auto 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 Advance Auto Parts are associated (or correlated) with Ulta Beauty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ulta Beauty has no effect on the direction of Advance Auto i.e., Advance Auto and Ulta Beauty go up and down completely randomly.

Pair Corralation between Advance Auto and Ulta Beauty

Considering the 90-day investment horizon Advance Auto Parts is expected to generate 0.88 times more return on investment than Ulta Beauty. However, Advance Auto Parts is 1.14 times less risky than Ulta Beauty. It trades about 0.27 of its potential returns per unit of risk. Ulta Beauty is currently generating about 0.03 per unit of risk. If you would invest  17,173  in Advance Auto Parts on May 21, 2022 and sell it today you would earn a total of  3,576  from holding Advance Auto Parts or generate 20.82% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Advance Auto Parts  vs.  Ulta Beauty

 Performance (%) 
       Timeline  
Advance Auto Parts 
Advance Performance
9 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Advance Auto Parts are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Advance Auto displayed solid returns over the last few months and may actually be approaching a breakup point.

Advance Price Channel

Ulta Beauty 
Ulta Beauty Performance
8 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Ulta Beauty are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ulta Beauty sustained solid returns over the last few months and may actually be approaching a breakup point.

Ulta Beauty Price Channel

Advance Auto and Ulta Beauty Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Advance Auto and Ulta Beauty

The main advantage of trading using opposite Advance Auto and Ulta Beauty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advance Auto position performs unexpectedly, Ulta Beauty 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 Ulta Beauty will offset losses from the drop in Ulta Beauty's long position.
The idea behind Advance Auto Parts and Ulta Beauty 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.
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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.

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