Correlation Between Exxon and Ulta Beauty

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

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

Diversification Opportunities for Exxon and Ulta Beauty

-0.23

Correlation Coefficient

Exxon  Ulta Beauty

Very good diversification

The 3 months correlation between Exxon and Ulta is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Ulta Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ulta Beauty and Exxon 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 Exxon Mobil Corp 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 Exxon i.e., Exxon and Ulta Beauty go up and down completely randomly.

Pair Corralation between Exxon and Ulta Beauty

Considering the 90-day investment horizon Exxon Mobil Corp is expected to generate 0.22 times more return on investment than Ulta Beauty. However, Exxon Mobil Corp is 4.57 times less risky than Ulta Beauty. It trades about 0.39 of its potential returns per unit of risk. Ulta Beauty is currently generating about -0.26 per unit of risk. If you would invest  11,230  in Exxon Mobil Corp on January 17, 2024 and sell it today you would earn a total of  738.00  from holding Exxon Mobil Corp or generate 6.57% return on investment over 90 days.

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

Exxon Mobil Corp  vs.  Ulta Beauty

Exxon Mobil Corp

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Exxon displayed 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 latest inconsistent 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 Exxon and Ulta Beauty

The main advantage of trading using opposite Exxon and Ulta Beauty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon 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 Exxon Mobil Corp 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.