Correlation Between IMPERIAL TOBACCO and Ulta Beauty

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Can any of the company-specific risk be diversified away by investing in both IMPERIAL TOBACCO 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 IMPERIAL TOBACCO and Ulta Beauty into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between IMPERIAL TOBACCO and Ulta Beauty, you can compare the effects of market volatilities on IMPERIAL TOBACCO 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 IMPERIAL TOBACCO with a short position of Ulta Beauty. Check out your portfolio center. Please also check ongoing floating volatility patterns of IMPERIAL TOBACCO and Ulta Beauty.

Diversification Opportunities for IMPERIAL TOBACCO and Ulta Beauty

0.62
  Correlation Coefficient

Poor diversification

The 3 months correlation between IMPERIAL and Ulta is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding IMPERIAL TOBACCO and Ulta Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ulta Beauty and IMPERIAL TOBACCO 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 IMPERIAL TOBACCO 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 IMPERIAL TOBACCO i.e., IMPERIAL TOBACCO and Ulta Beauty go up and down completely randomly.

Pair Corralation between IMPERIAL TOBACCO and Ulta Beauty

Assuming the 90 days trading horizon IMPERIAL TOBACCO is expected to generate 0.44 times more return on investment than Ulta Beauty. However, IMPERIAL TOBACCO is 2.27 times less risky than Ulta Beauty. It trades about 0.25 of its potential returns per unit of risk. Ulta Beauty is currently generating about 0.1 per unit of risk. If you would invest  2,578  in IMPERIAL TOBACCO on September 23, 2024 and sell it today you would earn a total of  503.00  from holding IMPERIAL TOBACCO or generate 19.51% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

IMPERIAL TOBACCO   vs.  Ulta Beauty

 Performance 
       Timeline  
IMPERIAL TOBACCO 

Risk-Adjusted Performance

19 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in IMPERIAL TOBACCO are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady fundamental drivers, IMPERIAL TOBACCO unveiled solid returns over the last few months and may actually be approaching a breakup point.
Ulta Beauty 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
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.

IMPERIAL TOBACCO and Ulta Beauty Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with IMPERIAL TOBACCO and Ulta Beauty

The main advantage of trading using opposite IMPERIAL TOBACCO and Ulta Beauty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IMPERIAL TOBACCO 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 IMPERIAL TOBACCO 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.

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