Correlation Between Dollar Tree and Healthy Choice

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

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

Diversification Opportunities for Dollar Tree and Healthy Choice

-0.58

Correlation Coefficient

Dollar Tree  Healthy Choice

Excellent diversification

The 3 months correlation between Dollar and Healthy is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Dollar Tree and Healthy Choice Wellness in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Healthy Choice Wellness 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 Healthy Choice. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Healthy Choice Wellness has no effect on the direction of Dollar Tree i.e., Dollar Tree and Healthy Choice go up and down completely randomly.

Pair Corralation between Dollar Tree and Healthy Choice

Given the investment horizon of 90 days Dollar Tree is expected to under-perform the Healthy Choice. But the stock apears to be less risky and, when comparing its historical volatility, Dollar Tree is 10.17 times less risky than Healthy Choice. The stock trades about -0.04 of its potential returns per unit of risk. The Healthy Choice Wellness is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  87.00  in Healthy Choice Wellness on October 23, 2024 and sell it today you would earn a total of  36.00  from holding Healthy Choice Wellness or generate 41.38% return on investment over 90 days.

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

Dollar Tree  vs.  Healthy Choice Wellness

Dollar Tree

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dollar Tree are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Dollar Tree may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Healthy Choice Wellness

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Healthy Choice Wellness has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Healthy Choice is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Dollar Tree and Healthy Choice

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

The idea behind Dollar Tree and Healthy Choice Wellness 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.