Correlation Between Dollar Tree and Synchrony Financial

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

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

Diversification Opportunities for Dollar Tree and Synchrony Financial

-0.22

Correlation Coefficient

Dollar Tree  Synchrony Financial

Very good diversification

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

Pair Corralation between Dollar Tree and Synchrony Financial

Assuming the 90 days trading horizon Dollar Tree is expected to generate 1.38 times more return on investment than Synchrony Financial. However, Dollar Tree is 1.38 times more volatile than Synchrony Financial. It trades about 0.01 of its potential returns per unit of risk. Synchrony Financial is currently generating about -0.11 per unit of risk. If you would invest  7,293  in Dollar Tree on December 1, 2024 and sell it today you would lose (58.00) from holding Dollar Tree or give up 0.8% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.65%
Values	Daily Returns

Dollar Tree  vs.  Synchrony Financial

Dollar Tree

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dollar Tree has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Dollar Tree is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Synchrony Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Synchrony Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Dollar Tree and Synchrony Financial

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

The idea behind Dollar Tree and Synchrony Financial 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.