Correlation Between Dollar Tree and Life Science

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

By analyzing existing cross correlation between Dollar Tree and Life Science REIT, you can compare the effects of market volatilities on Dollar Tree and Life Science 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 Life Science. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dollar Tree and Life Science.

Diversification Opportunities for Dollar Tree and Life Science

-0.69

Correlation Coefficient

Dollar Tree  Life Science

Excellent diversification

The 3 months correlation between Dollar and Life is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Dollar Tree and Life Science REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Life Science REIT 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 Life Science. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Life Science REIT has no effect on the direction of Dollar Tree i.e., Dollar Tree and Life Science go up and down completely randomly.

Pair Corralation between Dollar Tree and Life Science

Assuming the 90 days trading horizon Dollar Tree is expected to under-perform the Life Science. In addition to that, Dollar Tree is 1.96 times more volatile than Life Science REIT. It trades about -0.07 of its total potential returns per unit of risk. Life Science REIT is currently generating about 0.08 per unit of volatility. If you would invest  3,276  in Life Science REIT on September 24, 2024 and sell it today you would earn a total of  584.00  from holding Life Science REIT or generate 17.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.22%
Values	Daily Returns

Dollar Tree  vs.  Life Science REIT

Dollar Tree

Risk-Adjusted Performance

0 of 100

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.

Life Science REIT

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Life Science REIT are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Life Science unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dollar Tree and Life Science

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

The idea behind Dollar Tree and Life Science REIT 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.