Correlation Between Dollar Tree and Target

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

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

Diversification Opportunities for Dollar Tree and Target

-0.56

Correlation Coefficient

Dollar Tree  Target

Excellent diversification

The 3 months correlation between Dollar and Target is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Dollar Tree and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target 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 Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target has no effect on the direction of Dollar Tree i.e., Dollar Tree and Target go up and down completely randomly.

Pair Corralation between Dollar Tree and Target

Assuming the 90 days horizon Dollar Tree is expected to under-perform the Target. In addition to that, Dollar Tree is 1.16 times more volatile than Target. It trades about -0.05 of its total potential returns per unit of risk. Target is currently generating about 0.0 per unit of volatility. If you would invest  13,578  in Target on September 29, 2024 and sell it today you would lose (604.00) from holding Target or give up 4.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.22%
Values	Daily Returns

Dollar Tree  vs.  Target

Dollar Tree

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dollar Tree are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Dollar Tree reported solid returns over the last few months and may actually be approaching a breakup point.

Target

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Target has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Target is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Dollar Tree and Target

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

The idea behind Dollar Tree and Target 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.