Correlation Between Apple and Ulta Beauty

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

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

Diversification Opportunities for Apple and Ulta Beauty

0.73

Correlation Coefficient

Apple  Ulta Beauty

Poor diversification

The 3 months correlation between Apple and Ulta is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and Ulta Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ulta Beauty and Apple 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 Apple Inc 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 Apple i.e., Apple and Ulta Beauty go up and down completely randomly.

Pair Corralation between Apple and Ulta Beauty

Assuming the 90 days trading horizon Apple is expected to generate 2.2 times less return on investment than Ulta Beauty. But when comparing it to its historical volatility, Apple Inc is 4.93 times less risky than Ulta Beauty. It trades about 0.68 of its potential returns per unit of risk. Ulta Beauty is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  33,000  in Ulta Beauty on September 23, 2024 and sell it today you would earn a total of  7,510  from holding Ulta Beauty or generate 22.76% return on investment over 90 days.

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

Apple Inc  vs.  Ulta Beauty

Apple Inc

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Apple Inc are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile fundamental indicators, Apple displayed solid returns over the last few months and may actually be approaching a breakup point.

Ulta Beauty

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ulta Beauty are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Ulta Beauty reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Apple and Ulta Beauty

The main advantage of trading using opposite Apple and Ulta Beauty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Apple 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 Apple Inc 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.