Correlation Between Costco Wholesale and Dollar Tree

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Can any of the company-specific risk be diversified away by investing in both Costco 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 Costco 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 Costco Wholesale and Dollar Tree, you can compare the effects of market volatilities on Costco 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 Costco Wholesale with a short position of Dollar Tree. Check out your portfolio center. Please also check ongoing floating volatility patterns of Costco Wholesale and Dollar Tree.

Diversification Opportunities for Costco Wholesale and Dollar Tree

CostcoDollarDiversified AwayCostcoDollarDiversified Away100%
0.64
  Correlation Coefficient

Poor diversification

The 3 months correlation between Costco and Dollar is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale and Dollar Tree in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dollar Tree and Costco 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 Costco Wholesale 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 Costco Wholesale i.e., Costco Wholesale and Dollar Tree go up and down completely randomly.

Pair Corralation between Costco Wholesale and Dollar Tree

Assuming the 90 days horizon Costco Wholesale is expected to generate 1.29 times less return on investment than Dollar Tree. But when comparing it to its historical volatility, Costco Wholesale is 1.83 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 0.09 of returns per unit of risk over similar time horizon. If you would invest  6,119  in Dollar Tree on October 21, 2024 and sell it today you would earn a total of  851.00  from holding Dollar Tree or generate 13.91% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Costco Wholesale  vs.  Dollar Tree

 Performance 
JavaScript chart by amCharts 3.21.15NovDec2025 -10-505101520
JavaScript chart by amCharts 3.21.15CTO DT3
       Timeline  
Costco Wholesale 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Costco Wholesale may actually be approaching a critical reversion point that can send shares even higher in February 2025.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan800820840860880900920940960
Dollar Tree 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Dollar Tree are ranked lower than 7 (%) 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.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan60657075

Costco Wholesale and Dollar Tree Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-4.46-3.34-2.22-1.10.01.182.373.574.76 0.050.100.15
JavaScript chart by amCharts 3.21.15CTO DT3
       Returns  

Pair Trading with Costco Wholesale and Dollar Tree

The main advantage of trading using opposite Costco Wholesale and Dollar Tree positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Costco 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 Costco Wholesale 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..

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