Correlation Between BJs Wholesale and Dollar Tree

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

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

Diversification Opportunities for BJs Wholesale and Dollar Tree

-0.56

Correlation Coefficient

BJs Wholesale  Dollar Tree

Excellent diversification

The 3 months correlation between BJs and Dollar is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding BJs Wholesale Club and Dollar Tree in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dollar Tree and BJs Wholesale 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 BJs Wholesale Club 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 BJs Wholesale i.e., BJs Wholesale and Dollar Tree go up and down completely randomly.

Pair Corralation between BJs Wholesale and Dollar Tree

Allowing for the 90-day total investment horizon BJs Wholesale Club is expected to generate 0.92 times more return on investment than Dollar Tree. However, BJs Wholesale Club is 1.08 times less risky than Dollar Tree. It trades about 0.13 of its potential returns per unit of risk. Dollar Tree is currently generating about -0.05 per unit of risk. If you would invest  9,279  in BJs Wholesale Club on December 27, 2024 and sell it today you would earn a total of  1,770  from holding BJs Wholesale Club or generate 19.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

BJs Wholesale Club  vs.  Dollar Tree

BJs Wholesale Club

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BJs Wholesale Club are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile forward-looking indicators, BJs Wholesale revealed solid returns over the last few months and may actually be approaching a breakup point.

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. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with BJs Wholesale and Dollar Tree

The main advantage of trading using opposite BJs Wholesale and Dollar Tree positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BJs Wholesale 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 BJs Wholesale Club 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.