Correlation Between Berkshire Hathaway and Ulta Beauty

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

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

Diversification Opportunities for Berkshire Hathaway and Ulta Beauty

0.15

Correlation Coefficient

Berkshire Hathaway  Ulta Beauty

Average diversification

The 3 months correlation between Berkshire and Ulta is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Berkshire Hathaway and Ulta Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ulta Beauty and Berkshire Hathaway 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 Berkshire Hathaway 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 Berkshire Hathaway i.e., Berkshire Hathaway and Ulta Beauty go up and down completely randomly.

Pair Corralation between Berkshire Hathaway and Ulta Beauty

Assuming the 90 days horizon Berkshire Hathaway is expected to generate 0.55 times more return on investment than Ulta Beauty. However, Berkshire Hathaway is 1.82 times less risky than Ulta Beauty. It trades about 0.05 of its potential returns per unit of risk. Ulta Beauty is currently generating about 0.01 per unit of risk. If you would invest  49,434,300  in Berkshire Hathaway on January 24, 2024 and sell it today you would earn a total of  12,294,100  from holding Berkshire Hathaway or generate 24.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Berkshire Hathaway  vs.  Ulta Beauty

Berkshire Hathaway

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, Berkshire Hathaway may actually be approaching a critical reversion point that can send shares even higher in May 2024.

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.

Pair Trading with Berkshire Hathaway and Ulta Beauty

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