Correlation Between China Jo and Ulta Beauty

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

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

Diversification Opportunities for China Jo and Ulta Beauty

-0.18

Correlation Coefficient

China Jo  Ulta Beauty

Good diversification

The 3 months correlation between China and Ulta is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding China Jo Jo Drugstores and Ulta Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ulta Beauty and China Jo 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 China Jo Jo Drugstores 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 China Jo i.e., China Jo and Ulta Beauty go up and down completely randomly.

Pair Corralation between China Jo and Ulta Beauty

Given the investment horizon of 90 days China Jo Jo Drugstores is expected to under-perform the Ulta Beauty. In addition to that, China Jo is 2.67 times more volatile than Ulta Beauty. It trades about -0.02 of its total potential returns per unit of risk. Ulta Beauty is currently generating about 0.02 per unit of volatility. If you would invest  40,561  in Ulta Beauty on September 14, 2024 and sell it today you would earn a total of  1,836  from holding Ulta Beauty or generate 4.53% return on investment over 90 days.

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

China Jo Jo Drugstores  vs.  Ulta Beauty

China Jo Jo

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Jo Jo Drugstores are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain forward-looking indicators, China Jo exhibited solid returns over the last few months and may actually be approaching a breakup point.

Ulta Beauty

Risk-Adjusted Performance

5 of 100

Modest

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 inconsistent basic indicators, Ulta Beauty may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with China Jo and Ulta Beauty

The main advantage of trading using opposite China Jo and Ulta Beauty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Jo 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 China Jo Jo Drugstores 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.