Correlation Between AutoZone and Ulta Beauty

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

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

Diversification Opportunities for AutoZone and Ulta Beauty

0.11

Correlation Coefficient

AutoZone  Ulta Beauty

Average diversification

The 3 months correlation between AutoZone and Ulta is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding AutoZone and Ulta Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ulta Beauty and AutoZone 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 AutoZone 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 AutoZone i.e., AutoZone and Ulta Beauty go up and down completely randomly.

Pair Corralation between AutoZone and Ulta Beauty

Considering the 90-day investment horizon AutoZone is expected to generate 0.52 times more return on investment than Ulta Beauty. However, AutoZone is 1.93 times less risky than Ulta Beauty. It trades about 0.12 of its potential returns per unit of risk. Ulta Beauty is currently generating about -0.03 per unit of risk. If you would invest  316,954  in AutoZone on November 28, 2024 and sell it today you would earn a total of  25,606  from holding AutoZone or generate 8.08% return on investment over 90 days.

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

AutoZone  vs.  Ulta Beauty

AutoZone

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AutoZone are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, AutoZone may actually be approaching a critical reversion point that can send shares even higher in March 2025.

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 somewhat strong basic indicators, Ulta Beauty is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with AutoZone and Ulta Beauty

The main advantage of trading using opposite AutoZone and Ulta Beauty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AutoZone 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 AutoZone 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.