Correlation Between OReilly Automotive and Ulta Beauty

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

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

Diversification Opportunities for OReilly Automotive and Ulta Beauty

0.16

Correlation Coefficient

OReilly Automotive  Ulta Beauty

Average diversification

The 3 months correlation between OReilly and Ulta is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding OReilly Automotive and Ulta Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ulta Beauty and OReilly Automotive 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 OReilly Automotive 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 OReilly Automotive i.e., OReilly Automotive and Ulta Beauty go up and down completely randomly.

Pair Corralation between OReilly Automotive and Ulta Beauty

Given the investment horizon of 90 days OReilly Automotive is expected to generate 0.37 times more return on investment than Ulta Beauty. However, OReilly Automotive is 2.7 times less risky than Ulta Beauty. It trades about -0.43 of its potential returns per unit of risk. Ulta Beauty is currently generating about -0.33 per unit of risk. If you would invest  114,021  in OReilly Automotive on February 2, 2024 and sell it today you would lose (13,398) from holding OReilly Automotive or give up 11.75% of portfolio value over 90 days.

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

OReilly Automotive  vs.  Ulta Beauty

OReilly Automotive

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days OReilly Automotive has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, OReilly Automotive is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ulta Beauty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ulta Beauty has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with OReilly Automotive and Ulta Beauty

The main advantage of trading using opposite OReilly Automotive and Ulta Beauty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if OReilly Automotive 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 OReilly Automotive 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.

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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.