Correlation Between Ulta Beauty and Tractor Supply

Can any of the company-specific risk be diversified away by investing in both Ulta Beauty and Tractor Supply 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 Tractor Supply into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ulta Beauty and Tractor Supply, you can compare the effects of market volatilities on Ulta Beauty and Tractor Supply 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 Tractor Supply. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ulta Beauty and Tractor Supply.

Diversification Opportunities for Ulta Beauty and Tractor Supply

-0.11

Correlation Coefficient

Ulta Beauty  Tractor Supply

Good diversification

The 3 months correlation between Ulta and Tractor is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Ulta Beauty and Tractor Supply in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tractor Supply 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 Tractor Supply. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tractor Supply has no effect on the direction of Ulta Beauty i.e., Ulta Beauty and Tractor Supply go up and down completely randomly.

Pair Corralation between Ulta Beauty and Tractor Supply

Assuming the 90 days horizon Ulta Beauty is expected to under-perform the Tractor Supply. In addition to that, Ulta Beauty is 1.13 times more volatile than Tractor Supply. It trades about -0.18 of its total potential returns per unit of risk. Tractor Supply is currently generating about 0.01 per unit of volatility. If you would invest  4,983  in Tractor Supply on December 11, 2024 and sell it today you would lose (3.00) from holding Tractor Supply or give up 0.06% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Ulta Beauty  vs.  Tractor Supply

Ulta Beauty

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ulta Beauty has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Tractor Supply

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tractor Supply has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Tractor Supply is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Ulta Beauty and Tractor Supply

The main advantage of trading using opposite Ulta Beauty and Tractor Supply positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ulta Beauty position performs unexpectedly, Tractor Supply 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 Tractor Supply will offset losses from the drop in Tractor Supply's long position.

The idea behind Ulta Beauty and Tractor Supply 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 the Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.