Correlation Between Ulta Beauty and RH

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

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

Diversification Opportunities for Ulta Beauty and RH

0.3

Correlation Coefficient

Ulta Beauty  RH

Weak diversification

The 3 months correlation between Ulta and RH is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Ulta Beauty and RH in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RH 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 RH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RH has no effect on the direction of Ulta Beauty i.e., Ulta Beauty and RH go up and down completely randomly.

Pair Corralation between Ulta Beauty and RH

Given the investment horizon of 90 days Ulta Beauty is expected to under-perform the RH. But the stock apears to be less risky and, when comparing its historical volatility, Ulta Beauty is 1.9 times less risky than RH. The stock trades about -0.01 of its potential returns per unit of risk. The RH is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  21,568  in RH on August 24, 2024 and sell it today you would earn a total of  15,233  from holding RH or generate 70.63% return on investment over 90 days.

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

Ulta Beauty  vs.  RH

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 latest unfluctuating performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

RH

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RH are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating technical indicators, RH demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ulta Beauty and RH

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

The idea behind Ulta Beauty and RH 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.