Correlation Between Ulta Beauty and Trade Desk

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

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

Diversification Opportunities for Ulta Beauty and Trade Desk

0.63

Correlation Coefficient

Ulta Beauty  Trade Desk

Poor diversification

The 3 months correlation between Ulta and Trade is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Ulta Beauty and The Trade Desk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trade Desk and Ulta Beauty 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 Ulta Beauty are associated (or correlated) with Trade Desk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trade Desk has no effect on the direction of Ulta Beauty i.e., Ulta Beauty and Trade Desk go up and down completely randomly.

Pair Corralation between Ulta Beauty and Trade Desk

Assuming the 90 days trading horizon Ulta Beauty is expected to generate 1.3 times more return on investment than Trade Desk. However, Ulta Beauty is 1.3 times more volatile than The Trade Desk. It trades about 0.36 of its potential returns per unit of risk. The Trade Desk is currently generating about 0.33 per unit of risk. If you would invest  10,154  in Ulta Beauty on September 19, 2024 and sell it today you would earn a total of  2,656  from holding Ulta Beauty or generate 26.16% return on investment over 90 days.

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

Ulta Beauty  vs.  The Trade Desk

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.

Trade Desk

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Trade Desk are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Trade Desk sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ulta Beauty and Trade Desk

The main advantage of trading using opposite Ulta Beauty and Trade Desk positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ulta Beauty position performs unexpectedly, Trade Desk 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 Trade Desk will offset losses from the drop in Trade Desk's long position.

The idea behind Ulta Beauty and The Trade Desk 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.

Check out your portfolio center.

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.