Correlation Between Target Corp and Ulta Beauty

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

Diversification Opportunities for Target Corp and Ulta Beauty

0.47
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Target and Ulta Beauty is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Target Corp and Ulta Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ulta Beauty and Target Corp 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 Target Corp 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 Target Corp i.e., Target Corp and Ulta Beauty go up and down completely randomly.

Pair Corralation between Target Corp and Ulta Beauty

Considering the 90-day investment horizon Target Corp is expected to generate 1.42 times more return on investment than Ulta Beauty. However, Target Corp is 1.42 times more volatile than Ulta Beauty. It trades about -0.18 of its potential returns per unit of risk. Ulta Beauty is currently generating about -0.36 per unit of risk. If you would invest  17,079  in Target Corp on July 9, 2022 and sell it today you would lose (1,504)  from holding Target Corp or give up 8.81% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Target Corp  vs.  Ulta Beauty

 Performance (%) 
       Timeline  
Target Corp 
Target Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Target Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting technical and fundamental indicators, Target Corp may actually be approaching a critical reversion point that can send shares even higher in November 2022.

Target 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 current stock price disturbance, may contribute to short-term losses for the investors.

Ulta Beauty Price Channel

Target Corp and Ulta Beauty Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Target Corp and Ulta Beauty

The main advantage of trading using opposite Target Corp and Ulta Beauty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Target Corp 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 Target Corp 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.
Ulta Beauty vs. Best Buy Company
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 CEO Directory module to screen CEOs from public companies around the world.

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