Correlation Between Genuine Parts and Ulta Beauty

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

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

Diversification Opportunities for Genuine Parts and Ulta Beauty

-0.5

Correlation Coefficient

Genuine Parts  Ulta Beauty

Very good diversification

The 3 months correlation between Genuine and Ulta is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Genuine Parts and Ulta Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ulta Beauty and Genuine Parts 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 Genuine Parts 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 Genuine Parts i.e., Genuine Parts and Ulta Beauty go up and down completely randomly.

Pair Corralation between Genuine Parts and Ulta Beauty

Assuming the 90 days horizon Genuine Parts is expected to generate 0.59 times more return on investment than Ulta Beauty. However, Genuine Parts is 1.7 times less risky than Ulta Beauty. It trades about 0.14 of its potential returns per unit of risk. Ulta Beauty is currently generating about -0.09 per unit of risk. If you would invest  13,060  in Genuine Parts on February 2, 2024 and sell it today you would earn a total of  1,950  from holding Genuine Parts or generate 14.93% return on investment over 90 days.

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

Genuine Parts  vs.  Ulta Beauty

Genuine Parts

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Genuine Parts are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Genuine Parts reported solid returns over the last few months and may actually be approaching a breakup point.

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 uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Genuine Parts and Ulta Beauty

The main advantage of trading using opposite Genuine Parts and Ulta Beauty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Genuine Parts 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 Genuine Parts 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.