Correlation Between Walgreens Boots and Ulta Beauty

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

Diversification Opportunities for Walgreens Boots and Ulta Beauty

-0.44
  Correlation Coefficient

Very good diversification

The 3 months correlation between Walgreens and Ulta Beauty is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Walgreens Boots Alliance and Ulta Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ulta Beauty and Walgreens Boots 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 Walgreens Boots Alliance 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 Walgreens Boots i.e., Walgreens Boots and Ulta Beauty go up and down completely randomly.

Pair Corralation between Walgreens Boots and Ulta Beauty

Considering the 90-day investment horizon Walgreens Boots Alliance is expected to under-perform the Ulta Beauty. In addition to that, Walgreens Boots is 1.03 times more volatile than Ulta Beauty. It trades about -0.26 of its total potential returns per unit of risk. Ulta Beauty is currently generating about -0.08 per unit of volatility. If you would invest  41,987  in Ulta Beauty on July 2, 2022 and sell it today you would lose (1,511)  from holding Ulta Beauty or give up 3.6% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy95.45%
ValuesDaily Returns

Walgreens Boots Alliance  vs.  Ulta Beauty

 Performance (%) 
       Timeline  
Walgreens Boots Alliance 
Walgreens Performance
0 of 100
Over the last 90 days Walgreens Boots Alliance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in October 2022. The current disturbance may also be a sign of long term up-swing for the company investors.

Walgreens Price Channel

Ulta Beauty 
Ulta Beauty Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Ulta Beauty are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ulta Beauty may actually be approaching a critical reversion point that can send shares even higher in October 2022.

Ulta Beauty Price Channel

Walgreens Boots and Ulta Beauty Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Walgreens Boots and Ulta Beauty

The main advantage of trading using opposite Walgreens Boots and Ulta Beauty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walgreens Boots 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.
Walgreens Boots vs. General Electric
The idea behind Walgreens Boots Alliance 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.

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