Correlation Between Dollar Tree and DXC Technology

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

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

Diversification Opportunities for Dollar Tree and DXC Technology

0.0

Correlation Coefficient

Dollar Tree  DXC Technology

Pay attention - limited upside

The 3 months correlation between Dollar and DXC is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Dollar Tree and DXC Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DXC Technology and Dollar Tree 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 Tree are associated (or correlated) with DXC Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DXC Technology has no effect on the direction of Dollar Tree i.e., Dollar Tree and DXC Technology go up and down completely randomly.

Pair Corralation between Dollar Tree and DXC Technology

Assuming the 90 days trading horizon Dollar Tree is expected to under-perform the DXC Technology. In addition to that, Dollar Tree is 2.43 times more volatile than DXC Technology. It trades about -0.03 of its total potential returns per unit of risk. DXC Technology is currently generating about -0.06 per unit of volatility. If you would invest  53,800  in DXC Technology on October 26, 2024 and sell it today you would lose (17,800) from holding DXC Technology or give up 33.09% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Dollar Tree  vs.  DXC Technology

Dollar Tree

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dollar Tree are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Dollar Tree showed solid returns over the last few months and may actually be approaching a breakup point.

DXC Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DXC Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, DXC Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dollar Tree and DXC Technology

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

The idea behind Dollar Tree and DXC Technology 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 Global Correlations module to find global opportunities by holding instruments from different markets.