Correlation Between CHINA STATE and Ulta Beauty

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

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

Diversification Opportunities for CHINA STATE and Ulta Beauty

-0.46

Correlation Coefficient

CHINA STATE  Ulta Beauty

Very good diversification

The 3 months correlation between CHINA and Ulta is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding CHINA STATE STRU and Ulta Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ulta Beauty and CHINA STATE 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 CHINA STATE STRU 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 CHINA STATE i.e., CHINA STATE and Ulta Beauty go up and down completely randomly.

Pair Corralation between CHINA STATE and Ulta Beauty

Assuming the 90 days trading horizon CHINA STATE STRU is expected to under-perform the Ulta Beauty. But the stock apears to be less risky and, when comparing its historical volatility, CHINA STATE STRU is 6.84 times less risky than Ulta Beauty. The stock trades about -0.22 of its potential returns per unit of risk. The 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 Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

CHINA STATE STRU  vs.  Ulta Beauty

CHINA STATE STRU

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA STATE STRU are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, CHINA STATE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 CHINA STATE and Ulta Beauty

The main advantage of trading using opposite CHINA STATE and Ulta Beauty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CHINA STATE 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 CHINA STATE STRU 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 Transaction History module to view history of all your transactions and understand their impact on performance.