Correlation Between Dollar General and Grocery Outlet

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

By analyzing existing cross correlation between Dollar General and Grocery Outlet Holding, you can compare the effects of market volatilities on Dollar General and Grocery Outlet 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 Grocery Outlet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dollar General and Grocery Outlet.

Diversification Opportunities for Dollar General and Grocery Outlet

-0.54

Correlation Coefficient

Dollar General  Grocery Outlet

Excellent diversification

The 3 months correlation between Dollar and Grocery is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Dollar General and Grocery Outlet Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grocery Outlet Holding 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 Grocery Outlet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grocery Outlet Holding has no effect on the direction of Dollar General i.e., Dollar General and Grocery Outlet go up and down completely randomly.

Pair Corralation between Dollar General and Grocery Outlet

Allowing for the 90-day total investment horizon Dollar General is expected to under-perform the Grocery Outlet. But the stock apears to be less risky and, when comparing its historical volatility, Dollar General is 2.18 times less risky than Grocery Outlet. The stock trades about -0.02 of its potential returns per unit of risk. The Grocery Outlet Holding is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,627  in Grocery Outlet Holding on September 12, 2024 and sell it today you would earn a total of  259.00  from holding Grocery Outlet Holding or generate 15.92% return on investment over 90 days.

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

Dollar General  vs.  Grocery Outlet Holding

Dollar General

Risk-Adjusted Performance

0 of 100

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.

Grocery Outlet Holding

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Grocery Outlet Holding are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Grocery Outlet displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dollar General and Grocery Outlet

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

The idea behind Dollar General and Grocery Outlet Holding 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.