Correlation Between Walmart and Ulta Beauty

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

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

Diversification Opportunities for Walmart and Ulta Beauty

0.08

Correlation Coefficient

Walmart  Ulta Beauty

Significant diversification

The 3 months correlation between Walmart and Ulta is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Ulta Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ulta Beauty and Walmart 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 Walmart 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 Walmart i.e., Walmart and Ulta Beauty go up and down completely randomly.

Pair Corralation between Walmart and Ulta Beauty

Considering the 90-day investment horizon Walmart is expected to generate 0.64 times more return on investment than Ulta Beauty. However, Walmart is 1.57 times less risky than Ulta Beauty. It trades about -0.05 of its potential returns per unit of risk. Ulta Beauty is currently generating about -0.11 per unit of risk. If you would invest  9,254  in Walmart on December 25, 2024 and sell it today you would lose (505.00) from holding Walmart or give up 5.46% of portfolio value over 90 days.

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

Walmart  vs.  Ulta Beauty

Walmart

Risk-Adjusted Performance

Very Weak

Over the last 90 days Walmart has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, Walmart is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

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 unfluctuating performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Walmart and Ulta Beauty

The main advantage of trading using opposite Walmart and Ulta Beauty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walmart 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 Walmart 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.