Correlation Between Ulta Beauty and Best Buy

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

Diversification Opportunities for Ulta Beauty and Best Buy

0.91
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Ulta Beauty and Best Buy is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Ulta Beauty and Best Buy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Best Buy and Ulta Beauty 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 Ulta Beauty are associated (or correlated) with Best Buy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Best Buy has no effect on the direction of Ulta Beauty i.e., Ulta Beauty and Best Buy go up and down completely randomly.

Pair Corralation between Ulta Beauty and Best Buy

Given the investment horizon of 90 days Ulta Beauty is expected to generate 2.12 times less return on investment than Best Buy. But when comparing it to its historical volatility, Ulta Beauty is 2.58 times less risky than Best Buy. It trades about 0.4 of its potential returns per unit of risk. Best Buy Co is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  6,707  in Best Buy Co on September 4, 2022 and sell it today you would earn a total of  1,953  from holding Best Buy Co or generate 29.12% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Ulta Beauty  vs.  Best Buy Co

 Performance (%) 
       Timeline  
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 
Best Buy Performance
9 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Best Buy Co are ranked lower than 9 (%) 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 and Best Buy Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ulta Beauty and Best Buy

The main advantage of trading using opposite Ulta Beauty and Best Buy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ulta Beauty position performs unexpectedly, Best Buy 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 Best Buy will offset losses from the drop in Best Buy's long position.
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The idea behind Ulta Beauty and Best Buy Co 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 Transaction History module to view history of all your transactions and understand their impact on performance.

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