Correlation Between Dollar Tree and Volkswagen

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

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

Diversification Opportunities for Dollar Tree and Volkswagen

-0.21

Correlation Coefficient

Dollar Tree  Volkswagen

Very good diversification

The 3 months correlation between Dollar and Volkswagen is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Dollar Tree and Volkswagen AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG 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 Volkswagen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volkswagen AG has no effect on the direction of Dollar Tree i.e., Dollar Tree and Volkswagen go up and down completely randomly.

Pair Corralation between Dollar Tree and Volkswagen

Assuming the 90 days horizon Dollar Tree is expected to generate 1.55 times more return on investment than Volkswagen. However, Dollar Tree is 1.55 times more volatile than Volkswagen AG. It trades about -0.04 of its potential returns per unit of risk. Volkswagen AG is currently generating about -0.06 per unit of risk. If you would invest  13,318  in Dollar Tree on October 5, 2024 and sell it today you would lose (5,898) from holding Dollar Tree or give up 44.29% of portfolio value over 90 days.

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

Dollar Tree  vs.  Volkswagen AG

Dollar Tree

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Dollar Tree has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Dollar Tree reported solid returns over the last few months and may actually be approaching a breakup point.

Volkswagen AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Dollar Tree and Volkswagen

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

The idea behind Dollar Tree and Volkswagen AG 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..