Correlation Between Dollar Tree and UnitedHealth Group

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

By analyzing existing cross correlation between Dollar Tree and UnitedHealth Group Incorporated, you can compare the effects of market volatilities on Dollar Tree and UnitedHealth Group 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 UnitedHealth Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dollar Tree and UnitedHealth Group.

Diversification Opportunities for Dollar Tree and UnitedHealth Group

0.66

Correlation Coefficient

Dollar Tree  UnitedHealth Group

Poor diversification

The 3 months correlation between Dollar and UnitedHealth is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Dollar Tree and UnitedHealth Group Incorporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UnitedHealth Group 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 UnitedHealth Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UnitedHealth Group has no effect on the direction of Dollar Tree i.e., Dollar Tree and UnitedHealth Group go up and down completely randomly.

Pair Corralation between Dollar Tree and UnitedHealth Group

Assuming the 90 days trading horizon Dollar Tree is expected to under-perform the UnitedHealth Group. But the stock apears to be less risky and, when comparing its historical volatility, Dollar Tree is 2.63 times less risky than UnitedHealth Group. The stock trades about -0.16 of its potential returns per unit of risk. The UnitedHealth Group Incorporated is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,025,139  in UnitedHealth Group Incorporated on December 25, 2024 and sell it today you would earn a total of  13,287  from holding UnitedHealth Group Incorporated or generate 1.3% return on investment over 90 days.

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

Dollar Tree  vs.  UnitedHealth Group Incorporate

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. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

UnitedHealth Group

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in UnitedHealth Group Incorporated are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical indicators, UnitedHealth Group 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 UnitedHealth Group

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

The idea behind Dollar Tree and UnitedHealth Group Incorporated 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.