Correlation Between Micron Technology and Dollar Tree

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

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

Diversification Opportunities for Micron Technology and Dollar Tree

-0.43

Correlation Coefficient

Micron Technology  Dollar Tree

Very good diversification

The 3 months correlation between Micron and Dollar is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Micron Technology and Dollar Tree in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dollar Tree and Micron Technology 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 Micron Technology are associated (or correlated) with Dollar Tree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dollar Tree has no effect on the direction of Micron Technology i.e., Micron Technology and Dollar Tree go up and down completely randomly.

Pair Corralation between Micron Technology and Dollar Tree

Assuming the 90 days horizon Micron Technology is expected to under-perform the Dollar Tree. In addition to that, Micron Technology is 1.72 times more volatile than Dollar Tree. It trades about -0.03 of its total potential returns per unit of risk. Dollar Tree is currently generating about 0.13 per unit of volatility. If you would invest  133,300  in Dollar Tree on October 3, 2024 and sell it today you would earn a total of  21,600  from holding Dollar Tree or generate 16.2% return on investment over 90 days.

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

Micron Technology  vs.  Dollar Tree

Micron Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Micron Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Dollar Tree

Risk-Adjusted Performance

10 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dollar Tree are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Dollar Tree showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Micron Technology and Dollar Tree

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

The idea behind Micron Technology and Dollar Tree 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.