Correlation Between Nasdaq and Dollar Tree

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

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

Diversification Opportunities for Nasdaq and Dollar Tree

0.28

Correlation Coefficient

Nasdaq  Dollar Tree

Modest diversification

The 3 months correlation between Nasdaq and Dollar is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and Dollar Tree in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dollar Tree and Nasdaq 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 Nasdaq Inc 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 Nasdaq i.e., Nasdaq and Dollar Tree go up and down completely randomly.

Pair Corralation between Nasdaq and Dollar Tree

Given the investment horizon of 90 days Nasdaq Inc is expected to under-perform the Dollar Tree. But the stock apears to be less risky and, when comparing its historical volatility, Nasdaq Inc is 2.07 times less risky than Dollar Tree. The stock trades about -0.26 of its potential returns per unit of risk. The Dollar Tree is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  6,753  in Dollar Tree on September 29, 2024 and sell it today you would earn a total of  519.00  from holding Dollar Tree or generate 7.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.0%
Values	Daily Returns

Nasdaq Inc  vs.  Dollar Tree

Nasdaq Inc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Nasdaq may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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.

Pair Trading with Nasdaq and Dollar Tree

The main advantage of trading using opposite Nasdaq and Dollar Tree positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq 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 Nasdaq Inc 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.

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.