Correlation Between Magazine Luiza and Ulta Beauty

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

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

Diversification Opportunities for Magazine Luiza and Ulta Beauty

-0.81

Correlation Coefficient

Magazine Luiza  Ulta Beauty

Pay attention - limited upside

The 3 months correlation between Magazine and Ulta is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Magazine Luiza SA and Ulta Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ulta Beauty and Magazine Luiza 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 Magazine Luiza SA 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 Magazine Luiza i.e., Magazine Luiza and Ulta Beauty go up and down completely randomly.

Pair Corralation between Magazine Luiza and Ulta Beauty

Assuming the 90 days trading horizon Magazine Luiza SA is expected to under-perform the Ulta Beauty. In addition to that, Magazine Luiza is 1.67 times more volatile than Ulta Beauty. It trades about -0.18 of its total potential returns per unit of risk. Ulta Beauty is currently generating about -0.2 per unit of volatility. If you would invest  13,400  in Ulta Beauty on October 23, 2024 and sell it today you would lose (1,115) from holding Ulta Beauty or give up 8.32% of portfolio value over 90 days.

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

Magazine Luiza SA  vs.  Ulta Beauty

Magazine Luiza SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Magazine Luiza SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Ulta Beauty

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ulta Beauty are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Ulta Beauty sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Magazine Luiza and Ulta Beauty

The main advantage of trading using opposite Magazine Luiza and Ulta Beauty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Magazine Luiza 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 Magazine Luiza SA 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.