Correlation Between Ulta Beauty and Big 5

Can any of the company-specific risk be diversified away by investing in both Ulta Beauty and Big 5 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 Big 5 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ulta Beauty and Big 5 Sporting, you can compare the effects of market volatilities on Ulta Beauty and Big 5 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 Big 5. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ulta Beauty and Big 5.

Diversification Opportunities for Ulta Beauty and Big 5

0.7

Correlation Coefficient

Ulta Beauty  Big 5

Poor diversification

The 3 months correlation between Ulta and Big is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Ulta Beauty and Big 5 Sporting in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big 5 Sporting 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 Big 5. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big 5 Sporting has no effect on the direction of Ulta Beauty i.e., Ulta Beauty and Big 5 go up and down completely randomly.

Pair Corralation between Ulta Beauty and Big 5

Given the investment horizon of 90 days Ulta Beauty is expected to generate 0.36 times more return on investment than Big 5. However, Ulta Beauty is 2.76 times less risky than Big 5. It trades about -0.03 of its potential returns per unit of risk. Big 5 Sporting is currently generating about -0.08 per unit of risk. If you would invest  38,664  in Ulta Beauty on November 28, 2024 and sell it today you would lose (1,991) from holding Ulta Beauty or give up 5.15% of portfolio value over 90 days.

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

Ulta Beauty  vs.  Big 5 Sporting

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 somewhat strong basic indicators, Ulta Beauty is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Big 5 Sporting

Risk-Adjusted Performance

Very Weak

Over the last 90 days Big 5 Sporting has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's technical and fundamental indicators remain fairly stable which may send shares a bit higher in March 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Ulta Beauty and Big 5

The main advantage of trading using opposite Ulta Beauty and Big 5 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ulta Beauty position performs unexpectedly, Big 5 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 Big 5 will offset losses from the drop in Big 5's long position.

The idea behind Ulta Beauty and Big 5 Sporting 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.