Correlation Between Dollar Tree and BM European

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

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

Diversification Opportunities for Dollar Tree and BM European

0.45

Correlation Coefficient

Dollar Tree  BM European

Very weak diversification

The 3 months correlation between Dollar and BMRRY is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Dollar Tree and BM European Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BM European Value 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 BM European. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BM European Value has no effect on the direction of Dollar Tree i.e., Dollar Tree and BM European go up and down completely randomly.

Pair Corralation between Dollar Tree and BM European

Given the investment horizon of 90 days Dollar Tree is expected to generate 1.33 times more return on investment than BM European. However, Dollar Tree is 1.33 times more volatile than BM European Value. It trades about 0.0 of its potential returns per unit of risk. BM European Value is currently generating about -0.17 per unit of risk. If you would invest  7,477  in Dollar Tree on December 29, 2024 and sell it today you would lose (202.00) from holding Dollar Tree or give up 2.7% of portfolio value over 90 days.

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

Dollar Tree  vs.  BM European Value

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. Even with relatively invariable basic indicators, Dollar Tree is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

BM European Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days BM European Value has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Dollar Tree and BM European

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

The idea behind Dollar Tree and BM European Value 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.