Correlation Between Charter Communications and Ulta Beauty

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

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

Diversification Opportunities for Charter Communications and Ulta Beauty

0.58

Correlation Coefficient

Charter Communications  Ulta Beauty

Very weak diversification

The 3 months correlation between Charter and Ulta is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Charter Communications and Ulta Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ulta Beauty and Charter Communications 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 Charter Communications 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 Charter Communications i.e., Charter Communications and Ulta Beauty go up and down completely randomly.

Pair Corralation between Charter Communications and Ulta Beauty

Assuming the 90 days trading horizon Charter Communications is expected to generate 1.11 times more return on investment than Ulta Beauty. However, Charter Communications is 1.11 times more volatile than Ulta Beauty. It trades about 0.16 of its potential returns per unit of risk. Ulta Beauty is currently generating about 0.11 per unit of risk. If you would invest  3,011  in Charter Communications on September 19, 2024 and sell it today you would earn a total of  877.00  from holding Charter Communications or generate 29.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Charter Communications  vs.  Ulta Beauty

Charter Communications

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Charter Communications are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Charter Communications sustained solid returns over the last few months and may actually be approaching a breakup point.

Ulta Beauty

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ulta Beauty are ranked lower than 8 (%) 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 Charter Communications and Ulta Beauty

The main advantage of trading using opposite Charter Communications and Ulta Beauty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Charter Communications 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 Charter Communications 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.