Correlation Between Big 5 and Ulta Beauty

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Can any of the company-specific risk be diversified away by investing in both Big 5 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 Big 5 and Ulta Beauty into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Big 5 Sporting and Ulta Beauty, you can compare the effects of market volatilities on Big 5 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 Big 5 with a short position of Ulta Beauty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big 5 and Ulta Beauty.

Diversification Opportunities for Big 5 and Ulta Beauty

0.19
  Correlation Coefficient

Average diversification

The 3 months correlation between Big 5 and Ulta Beauty is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and Ulta Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ulta Beauty and Big 5 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 Big 5 Sporting 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 Big 5 i.e., Big 5 and Ulta Beauty go up and down completely randomly.

Pair Corralation between Big 5 and Ulta Beauty

Given the investment horizon of 90 days Big 5 Sporting is expected to under-perform the Ulta Beauty. In addition to that, Big 5 is 1.48 times more volatile than Ulta Beauty. It trades about -0.05 of its total potential returns per unit of risk. Ulta Beauty is currently generating about 0.02 per unit of volatility. If you would invest  37,604  in Ulta Beauty on May 10, 2022 and sell it today you would earn a total of  335.00  from holding Ulta Beauty or generate 0.89% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Big 5 Sporting  vs.  Ulta Beauty

 Performance (%) 
       Timeline  
Big 5 Sporting 
Big 5 Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Big 5 Sporting are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable technical and fundamental indicators, Big 5 is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Big 5 Price Channel

Ulta Beauty 
Ulta Beauty Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Ulta Beauty are ranked lower than 1 (%) 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 newest stock price disturbance, may contribute to short-term losses for the investors.

Ulta Beauty Price Channel

Big 5 and Ulta Beauty Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Big 5 and Ulta Beauty

The main advantage of trading using opposite Big 5 and Ulta Beauty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big 5 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 Big 5 Sporting 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.

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