Correlation Between Cardinal Health and Dollar Tree

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

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

Diversification Opportunities for Cardinal Health and Dollar Tree

0.22

Correlation Coefficient

Cardinal Health  Dollar Tree

Modest diversification

The 3 months correlation between Cardinal and Dollar is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Cardinal Health and Dollar Tree in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dollar Tree and Cardinal Health 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 Cardinal Health are associated (or correlated) with Dollar Tree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dollar Tree has no effect on the direction of Cardinal Health i.e., Cardinal Health and Dollar Tree go up and down completely randomly.

Pair Corralation between Cardinal Health and Dollar Tree

Assuming the 90 days trading horizon Cardinal Health is expected to generate 0.48 times more return on investment than Dollar Tree. However, Cardinal Health is 2.08 times less risky than Dollar Tree. It trades about 0.08 of its potential returns per unit of risk. Dollar Tree is currently generating about 0.04 per unit of risk. If you would invest  12,172  in Cardinal Health on November 29, 2024 and sell it today you would earn a total of  635.00  from holding Cardinal Health or generate 5.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Cardinal Health  vs.  Dollar Tree

Cardinal Health

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cardinal Health are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Cardinal Health is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Dollar Tree

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dollar Tree are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Dollar Tree is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Cardinal Health and Dollar Tree

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

The idea behind Cardinal Health and Dollar Tree 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.