Correlation Between Waste Management and Ulta Beauty

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

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

Diversification Opportunities for Waste Management and Ulta Beauty

0.44

Correlation Coefficient

Waste Management  Ulta Beauty

Very weak diversification

The 3 months correlation between Waste and Ulta is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and Ulta Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ulta Beauty and Waste Management 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 Waste Management 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 Waste Management i.e., Waste Management and Ulta Beauty go up and down completely randomly.

Pair Corralation between Waste Management and Ulta Beauty

Assuming the 90 days trading horizon Waste Management is expected to generate 0.59 times more return on investment than Ulta Beauty. However, Waste Management is 1.68 times less risky than Ulta Beauty. It trades about 0.11 of its potential returns per unit of risk. Ulta Beauty is currently generating about 0.03 per unit of risk. If you would invest  44,201  in Waste Management on October 9, 2024 and sell it today you would earn a total of  18,047  from holding Waste Management or generate 40.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.17%
Values	Daily Returns

Waste Management  vs.  Ulta Beauty

Waste Management

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong primary indicators, Waste Management is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Ulta Beauty

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ulta Beauty are ranked lower than 12 (%) 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 Waste Management and Ulta Beauty

The main advantage of trading using opposite Waste Management and Ulta Beauty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Waste Management 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 Waste Management 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.