Correlation Between Lowes Companies and Ulta Beauty

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

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

Diversification Opportunities for Lowes Companies and Ulta Beauty

0.64

Correlation Coefficient

Lowes Companies  Ulta Beauty

Poor diversification

The 3 months correlation between Lowes and Ulta is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Lowes Companies and Ulta Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ulta Beauty and Lowes Companies 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 Lowes Companies 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 Lowes Companies i.e., Lowes Companies and Ulta Beauty go up and down completely randomly.

Pair Corralation between Lowes Companies and Ulta Beauty

Considering the 90-day investment horizon Lowes Companies is expected to generate 0.51 times more return on investment than Ulta Beauty. However, Lowes Companies is 1.95 times less risky than Ulta Beauty. It trades about -0.07 of its potential returns per unit of risk. Ulta Beauty is currently generating about -0.1 per unit of risk. If you would invest  24,834  in Lowes Companies on December 26, 2024 and sell it today you would lose (1,629) from holding Lowes Companies or give up 6.56% of portfolio value over 90 days.

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

Lowes Companies  vs.  Ulta Beauty

Lowes Companies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lowes Companies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

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 unfluctuating performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Lowes Companies and Ulta Beauty

The main advantage of trading using opposite Lowes Companies and Ulta Beauty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lowes Companies 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 Lowes Companies 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.

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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..