Correlation Between Target and Dollar Tree

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

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

Diversification Opportunities for Target and Dollar Tree

0.72

Correlation Coefficient

Target  Dollar Tree

Poor diversification

The 3 months correlation between Target and Dollar is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Target and Dollar Tree in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dollar Tree and Target 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 Target 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 Target i.e., Target and Dollar Tree go up and down completely randomly.

Pair Corralation between Target and Dollar Tree

Considering the 90-day investment horizon Target is expected to under-perform the Dollar Tree. But the stock apears to be less risky and, when comparing its historical volatility, Target is 1.72 times less risky than Dollar Tree. The stock trades about -0.23 of its potential returns per unit of risk. The Dollar Tree is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  7,477  in Dollar Tree on December 28, 2024 and sell it today you would lose (202.00) from holding Dollar Tree or give up 2.7% of portfolio value over 90 days.

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

Target  vs.  Dollar Tree

Target

Risk-Adjusted Performance

Very Weak

Over the last 90 days Target has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Dollar Tree

Risk-Adjusted Performance

Weak

Over the last 90 days Dollar Tree has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Dollar Tree is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Target and Dollar Tree

The main advantage of trading using opposite Target and Dollar Tree positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Target 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 Target 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.