Correlation Between Ulta Beauty and Academy Sports

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

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

Diversification Opportunities for Ulta Beauty and Academy Sports

0.7

Correlation Coefficient

Ulta Beauty  Academy Sports

Poor diversification

The 3 months correlation between Ulta and Academy is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Ulta Beauty and Academy Sports Outdoors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Academy Sports Outdoors 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 Academy Sports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Academy Sports Outdoors has no effect on the direction of Ulta Beauty i.e., Ulta Beauty and Academy Sports go up and down completely randomly.

Pair Corralation between Ulta Beauty and Academy Sports

Given the investment horizon of 90 days Ulta Beauty is expected to generate 0.89 times more return on investment than Academy Sports. However, Ulta Beauty is 1.13 times less risky than Academy Sports. It trades about 0.06 of its potential returns per unit of risk. Academy Sports Outdoors is currently generating about -0.08 per unit of risk. If you would invest  35,284  in Ulta Beauty on August 30, 2024 and sell it today you would earn a total of  2,241  from holding Ulta Beauty or generate 6.35% return on investment over 90 days.

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

Ulta Beauty  vs.  Academy Sports Outdoors

Ulta Beauty

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ulta Beauty are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Ulta Beauty may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Academy Sports Outdoors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Academy Sports Outdoors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Ulta Beauty and Academy Sports

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

The idea behind Ulta Beauty and Academy Sports Outdoors 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.