Correlation Between Promotora and Dollar Tree

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

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

Diversification Opportunities for Promotora and Dollar Tree

0.44

Correlation Coefficient

Promotora  Dollar Tree

Very weak diversification

The 3 months correlation between Promotora and Dollar is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Promotora y Operadora and Dollar Tree in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dollar Tree and Promotora 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 Promotora y Operadora 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 Promotora i.e., Promotora and Dollar Tree go up and down completely randomly.

Pair Corralation between Promotora and Dollar Tree

Assuming the 90 days trading horizon Promotora is expected to generate 4.18 times less return on investment than Dollar Tree. But when comparing it to its historical volatility, Promotora y Operadora is 1.26 times less risky than Dollar Tree. It trades about 0.04 of its potential returns per unit of risk. Dollar Tree is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  134,000  in Dollar Tree on October 11, 2024 and sell it today you would earn a total of  20,900  from holding Dollar Tree or generate 15.6% return on investment over 90 days.

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

Promotora y Operadora  vs.  Dollar Tree

Promotora y Operadora

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Promotora y Operadora are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Promotora is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dollar Tree

Risk-Adjusted Performance

10 of 100

OK

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 Promotora and Dollar Tree

The main advantage of trading using opposite Promotora and Dollar Tree positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Promotora 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 Promotora y Operadora 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.