Correlation Between Ulta Beauty and Wayfair
Can any of the company-specific risk be diversified away by investing in both Ulta Beauty and Wayfair 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 Wayfair into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ulta Beauty and Wayfair, you can compare the effects of market volatilities on Ulta Beauty and Wayfair 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 Wayfair. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ulta Beauty and Wayfair.
Diversification Opportunities for Ulta Beauty and Wayfair
0.3 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Ulta and Wayfair is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Ulta Beauty and Wayfair in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wayfair 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 Wayfair. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wayfair has no effect on the direction of Ulta Beauty i.e., Ulta Beauty and Wayfair go up and down completely randomly.
Pair Corralation between Ulta Beauty and Wayfair
Given the investment horizon of 90 days Ulta Beauty is expected to under-perform the Wayfair. But the stock apears to be less risky and, when comparing its historical volatility, Ulta Beauty is 2.12 times less risky than Wayfair. The stock trades about 0.0 of its potential returns per unit of risk. The Wayfair is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 5,210 in Wayfair on September 1, 2024 and sell it today you would lose (586.00) from holding Wayfair or give up 11.25% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ulta Beauty vs. Wayfair
Performance |
| Timeline |
| Ulta Beauty |
| Wayfair |
Ulta Beauty and Wayfair Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ulta Beauty and Wayfair
The main advantage of trading using opposite Ulta Beauty and Wayfair positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ulta Beauty position performs unexpectedly, Wayfair 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 Wayfair will offset losses from the drop in Wayfair's long position.| Ulta Beauty vs. Williams Sonoma | Ulta Beauty vs. Dicks Sporting Goods | Ulta Beauty vs. Best Buy Co | Ulta Beauty vs. AutoZone |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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