Correlation Between Visa and Ulta Beauty

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

Diversification Opportunities for Visa and Ulta Beauty

-0.65
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Visa and Ulta is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Ulta Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ulta Beauty and Visa 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 Visa Class A 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 Visa i.e., Visa and Ulta Beauty go up and down completely randomly.

Pair Corralation between Visa and Ulta Beauty

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.45 times more return on investment than Ulta Beauty. However, Visa Class A is 2.22 times less risky than Ulta Beauty. It trades about 0.07 of its potential returns per unit of risk. Ulta Beauty is currently generating about 0.03 per unit of risk. If you would invest  24,240  in Visa Class A on January 6, 2025 and sell it today you would earn a total of  7,073  from holding Visa Class A or generate 29.18% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy99.71%
ValuesDaily Returns

Visa Class A  vs.  Ulta Beauty

 Performance 
       Timeline  
Visa Class A 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Visa Class A has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Visa is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.
Ulta Beauty 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Ulta Beauty has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's essential indicators remain somewhat strong which may send shares a bit higher in May 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Visa and Ulta Beauty Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Visa and Ulta Beauty

The main advantage of trading using opposite Visa and Ulta Beauty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa 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.
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The idea behind Visa Class A 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 Stocks Directory module to find actively traded stocks across global markets.

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