Correlation Between Ulta Beauty and Hormel Foods

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

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

Diversification Opportunities for Ulta Beauty and Hormel Foods

0.84

Correlation Coefficient

Ulta Beauty  Hormel Foods

Very poor diversification

The 3 months correlation between Ulta and Hormel is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Ulta Beauty and Hormel Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hormel Foods and Ulta Beauty 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 Ulta Beauty are associated (or correlated) with Hormel Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hormel Foods has no effect on the direction of Ulta Beauty i.e., Ulta Beauty and Hormel Foods go up and down completely randomly.

Pair Corralation between Ulta Beauty and Hormel Foods

Assuming the 90 days trading horizon Ulta Beauty is expected to under-perform the Hormel Foods. In addition to that, Ulta Beauty is 1.81 times more volatile than Hormel Foods. It trades about -0.23 of its total potential returns per unit of risk. Hormel Foods is currently generating about -0.36 per unit of volatility. If you would invest  19,773  in Hormel Foods on October 26, 2024 and sell it today you would lose (1,701) from holding Hormel Foods or give up 8.6% of portfolio value over 90 days.

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

Ulta Beauty  vs.  Hormel Foods

Ulta Beauty

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ulta Beauty are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain essential indicators, Ulta Beauty sustained solid returns over the last few months and may actually be approaching a breakup point.

Hormel Foods

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hormel Foods are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Hormel Foods is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ulta Beauty and Hormel Foods

The main advantage of trading using opposite Ulta Beauty and Hormel Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ulta Beauty position performs unexpectedly, Hormel Foods 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 Hormel Foods will offset losses from the drop in Hormel Foods' long position.

The idea behind Ulta Beauty and Hormel Foods 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 CEOs Directory module to screen CEOs from public companies around the world.