Correlation Between Dollar Tree and Walmart

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

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

Diversification Opportunities for Dollar Tree and Walmart

0.47

Correlation Coefficient

Dollar Tree  Walmart

Very weak diversification

The 3 months correlation between Dollar and Walmart is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Dollar Tree and Walmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walmart 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 Walmart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walmart has no effect on the direction of Dollar Tree i.e., Dollar Tree and Walmart go up and down completely randomly.

Pair Corralation between Dollar Tree and Walmart

Given the investment horizon of 90 days Dollar Tree is expected to generate 1.73 times more return on investment than Walmart. However, Dollar Tree is 1.73 times more volatile than Walmart. It trades about 0.0 of its potential returns per unit of risk. Walmart is currently generating about -0.04 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.  Walmart

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.

Walmart

Risk-Adjusted Performance

Very Weak

Over the last 90 days Walmart has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, Walmart is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Dollar Tree and Walmart

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

The idea behind Dollar Tree and Walmart 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.