Correlation Between MidCap Financial and Dollar Tree

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

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

Diversification Opportunities for MidCap Financial and Dollar Tree

0.68

Correlation Coefficient

MidCap Financial  Dollar Tree

Poor diversification

The 3 months correlation between MidCap and Dollar is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding MidCap Financial Investment and Dollar Tree in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dollar Tree and MidCap Financial 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 MidCap Financial Investment 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 MidCap Financial i.e., MidCap Financial and Dollar Tree go up and down completely randomly.

Pair Corralation between MidCap Financial and Dollar Tree

Assuming the 90 days trading horizon MidCap Financial Investment is expected to generate 0.53 times more return on investment than Dollar Tree. However, MidCap Financial Investment is 1.9 times less risky than Dollar Tree. It trades about 0.07 of its potential returns per unit of risk. Dollar Tree is currently generating about -0.04 per unit of risk. If you would invest  863.00  in MidCap Financial Investment on October 11, 2024 and sell it today you would earn a total of  414.00  from holding MidCap Financial Investment or generate 47.97% return on investment over 90 days.

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

MidCap Financial Investment  vs.  Dollar Tree

MidCap Financial Inv

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MidCap Financial Investment are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, MidCap Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Dollar Tree

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dollar Tree are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Dollar Tree reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MidCap Financial and Dollar Tree

The main advantage of trading using opposite MidCap Financial and Dollar Tree positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MidCap Financial 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 MidCap Financial Investment 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.

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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.