Correlation Between Dollar Tree and PetMed Express

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

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

Diversification Opportunities for Dollar Tree and PetMed Express

0.6

Correlation Coefficient

Dollar Tree  PetMed Express

Poor diversification

The 3 months correlation between Dollar and PetMed is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Dollar Tree and PetMed Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PetMed Express 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 PetMed Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PetMed Express has no effect on the direction of Dollar Tree i.e., Dollar Tree and PetMed Express go up and down completely randomly.

Pair Corralation between Dollar Tree and PetMed Express

Given the investment horizon of 90 days Dollar Tree is expected to generate 0.78 times more return on investment than PetMed Express. However, Dollar Tree is 1.29 times less risky than PetMed Express. It trades about 0.0 of its potential returns per unit of risk. PetMed Express is currently generating about -0.05 per unit of risk. If you would invest  7,477  in Dollar Tree on December 28, 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	Significant
Accuracy	100.0%
Values	Daily Returns

Dollar Tree  vs.  PetMed Express

Dollar Tree

Risk-Adjusted Performance

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.

PetMed Express

Risk-Adjusted Performance

Very Weak

Over the last 90 days PetMed Express has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Dollar Tree and PetMed Express

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

The idea behind Dollar Tree and PetMed Express 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.