Correlation Between Build-A-Bear Workshop and Ulta Beauty

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

Diversification Opportunities for Build-A-Bear Workshop and Ulta Beauty

0.4
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Build-A-Bear and Ulta Beauty is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Build-A-Bear Workshop and Ulta Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ulta Beauty and Build-A-Bear Workshop 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 Build-A-Bear Workshop 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 Build-A-Bear Workshop i.e., Build-A-Bear Workshop and Ulta Beauty go up and down completely randomly.

Pair Corralation between Build-A-Bear Workshop and Ulta Beauty

Considering the 90-day investment horizon Build-A-Bear Workshop is expected to generate 2.39 times more return on investment than Ulta Beauty. However, Build-A-Bear Workshop is 2.39 times more volatile than Ulta Beauty. It trades about 0.1 of its potential returns per unit of risk. Ulta Beauty is currently generating about 0.06 per unit of risk. If you would invest  227.00  in Build-A-Bear Workshop on May 17, 2022 and sell it today you would earn a total of  1,603  from holding Build-A-Bear Workshop or generate 706.17% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Build-A-Bear Workshop  vs.  Ulta Beauty

 Performance (%) 
       Timeline  
Build-A-Bear Workshop 
Build-A-Bear Performance
0 of 100
Over the last 90 days Build-A-Bear Workshop has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental drivers, Build-A-Bear Workshop is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Build-A-Bear Price Channel

Ulta Beauty 
Ulta Beauty Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Ulta Beauty are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Ulta Beauty is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Ulta Beauty Price Channel

Build-A-Bear Workshop and Ulta Beauty Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Build-A-Bear Workshop and Ulta Beauty

The main advantage of trading using opposite Build-A-Bear Workshop and Ulta Beauty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Build-A-Bear Workshop 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 Build-A-Bear Workshop 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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