Correlation Between Dollar Tree and RS GROUP

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

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

Diversification Opportunities for Dollar Tree and RS GROUP

-0.49

Correlation Coefficient

Dollar Tree  RS GROUP

Very good diversification

The 3 months correlation between Dollar and RS1 is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Dollar Tree and RS GROUP PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RS GROUP PLC 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 RS GROUP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RS GROUP PLC has no effect on the direction of Dollar Tree i.e., Dollar Tree and RS GROUP go up and down completely randomly.

Pair Corralation between Dollar Tree and RS GROUP

Assuming the 90 days trading horizon Dollar Tree is expected to generate 1.55 times more return on investment than RS GROUP. However, Dollar Tree is 1.55 times more volatile than RS GROUP PLC. It trades about 0.07 of its potential returns per unit of risk. RS GROUP PLC is currently generating about 0.02 per unit of risk. If you would invest  6,970  in Dollar Tree on October 20, 2024 and sell it today you would earn a total of  240.00  from holding Dollar Tree or generate 3.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Dollar Tree  vs.  RS GROUP PLC

Dollar Tree

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dollar Tree are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Dollar Tree may actually be approaching a critical reversion point that can send shares even higher in February 2025.

RS GROUP PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RS GROUP PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, RS GROUP is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Dollar Tree and RS GROUP

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

The idea behind Dollar Tree and RS GROUP PLC 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.