Correlation Between Dollar General and Estee Lauder

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

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

Diversification Opportunities for Dollar General and Estee Lauder

0.12

Correlation Coefficient

Dollar General  Estee Lauder

Average diversification

The 3 months correlation between Dollar and Estee is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Dollar General and Estee Lauder Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Estee Lauder Companies and Dollar General 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 General are associated (or correlated) with Estee Lauder. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Estee Lauder Companies has no effect on the direction of Dollar General i.e., Dollar General and Estee Lauder go up and down completely randomly.

Pair Corralation between Dollar General and Estee Lauder

Allowing for the 90-day total investment horizon Dollar General is expected to under-perform the Estee Lauder. But the stock apears to be less risky and, when comparing its historical volatility, Dollar General is 1.64 times less risky than Estee Lauder. The stock trades about -0.03 of its potential returns per unit of risk. The Estee Lauder Companies is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  7,598  in Estee Lauder Companies on December 1, 2024 and sell it today you would lose (407.00) from holding Estee Lauder Companies or give up 5.36% of portfolio value over 90 days.

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

Dollar General  vs.  Estee Lauder Companies

Dollar General

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dollar General has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Dollar General is not utilizing all of its potentials. The new stock price disturbance, may contribute to mid-run losses for the stockholders.

Estee Lauder Companies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Estee Lauder Companies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Estee Lauder is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Dollar General and Estee Lauder

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

The idea behind Dollar General and Estee Lauder Companies 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.