Correlation Between Macys and Ulta Beauty

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

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

Diversification Opportunities for Macys and Ulta Beauty

0.56

Correlation Coefficient

Macys  Ulta Beauty

Very weak diversification

The 3 months correlation between Macys and Ulta is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Macys Inc and Ulta Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ulta Beauty and Macys 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 Macys 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 Macys i.e., Macys and Ulta Beauty go up and down completely randomly.

Pair Corralation between Macys and Ulta Beauty

Taking into account the 90-day investment horizon Macys is expected to generate 5.25 times less return on investment than Ulta Beauty. But when comparing it to its historical volatility, Macys Inc is 1.3 times less risky than Ulta Beauty. It trades about 0.08 of its potential returns per unit of risk. Ulta Beauty is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  36,265  in Ulta Beauty on September 25, 2024 and sell it today you would earn a total of  6,649  from holding Ulta Beauty or generate 18.33% return on investment over 90 days.

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

Macys Inc  vs.  Ulta Beauty

Macys Inc

Risk-Adjusted Performance

6 of 100

Modest

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

Ulta Beauty

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ulta Beauty are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Ulta Beauty may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Macys and Ulta Beauty

The main advantage of trading using opposite Macys and Ulta Beauty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Macys 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 Macys 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.