Correlation Between GFL ENVIRONM and Ulta Beauty

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

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

Diversification Opportunities for GFL ENVIRONM and Ulta Beauty

0.48

Correlation Coefficient

GFL ENVIRONM  Ulta Beauty

Very weak diversification

The 3 months correlation between GFL and Ulta is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding GFL ENVIRONM and Ulta Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ulta Beauty and GFL ENVIRONM 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 GFL ENVIRONM 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 GFL ENVIRONM i.e., GFL ENVIRONM and Ulta Beauty go up and down completely randomly.

Pair Corralation between GFL ENVIRONM and Ulta Beauty

Assuming the 90 days horizon GFL ENVIRONM is expected to generate 8.95 times less return on investment than Ulta Beauty. But when comparing it to its historical volatility, GFL ENVIRONM is 2.53 times less risky than Ulta Beauty. It trades about 0.09 of its potential returns per unit of risk. Ulta Beauty is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  32,290  in Ulta Beauty on September 22, 2024 and sell it today you would earn a total of  7,990  from holding Ulta Beauty or generate 24.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

GFL ENVIRONM  vs.  Ulta Beauty

GFL ENVIRONM

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in GFL ENVIRONM are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, GFL ENVIRONM reported solid returns over the last few months and may actually be approaching a breakup point.

Ulta Beauty

Risk-Adjusted Performance

7 of 100

OK

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 nearly uncertain basic indicators, Ulta Beauty reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GFL ENVIRONM and Ulta Beauty

The main advantage of trading using opposite GFL ENVIRONM and Ulta Beauty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GFL ENVIRONM 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 GFL ENVIRONM 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 the Stocks Directory module to find actively traded stocks across global markets.