Correlation Between Best Buy and Ulta Beauty

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

Diversification Opportunities for Best Buy and Ulta Beauty

0.91
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Best Buy and Ulta Beauty is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Best Buy Co and Ulta Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ulta Beauty and Best Buy 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 Best Buy Co 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 Best Buy i.e., Best Buy and Ulta Beauty go up and down completely randomly.

Pair Corralation between Best Buy and Ulta Beauty

Considering the 90-day investment horizon Best Buy Co is expected to under-perform the Ulta Beauty. In addition to that, Best Buy is 1.21 times more volatile than Ulta Beauty. It trades about -0.01 of its total potential returns per unit of risk. Ulta Beauty is currently generating about 0.04 per unit of volatility. If you would invest  40,441  in Ulta Beauty on September 5, 2022 and sell it today you would earn a total of  6,692  from holding Ulta Beauty or generate 16.55% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Best Buy Co  vs.  Ulta Beauty

 Performance (%) 
       Timeline  
Best Buy 
Best Buy Performance
8 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Best Buy Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting fundamental drivers, Best Buy showed solid returns over the last few months and may actually be approaching a breakup point.

Best Buy Price Channel

Ulta Beauty 
Ulta Beauty Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Ulta Beauty are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Ulta Beauty may actually be approaching a critical reversion point that can send shares even higher in January 2023.

Ulta Beauty Price Channel

Best Buy and Ulta Beauty Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Best Buy and Ulta Beauty

The main advantage of trading using opposite Best Buy and Ulta Beauty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Best Buy 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.
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The idea behind Best Buy Co 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.
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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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