Correlation Between Walmart and Dollar Tree

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

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

Diversification Opportunities for Walmart and Dollar Tree

0.3

Correlation Coefficient

Walmart  Dollar Tree

Weak diversification

The 3 months correlation between Walmart and Dollar is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Dollar Tree in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dollar Tree and Walmart 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 Walmart 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 Walmart i.e., Walmart and Dollar Tree go up and down completely randomly.

Pair Corralation between Walmart and Dollar Tree

Assuming the 90 days trading horizon Walmart is expected to generate 1.99 times more return on investment than Dollar Tree. However, Walmart is 1.99 times more volatile than Dollar Tree. It trades about -0.04 of its potential returns per unit of risk. Dollar Tree is currently generating about -0.14 per unit of risk. If you would invest  184,990  in Walmart on December 27, 2024 and sell it today you would lose (10,209) from holding Walmart or give up 5.52% of portfolio value over 90 days.

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

Walmart  vs.  Dollar Tree

Walmart

Risk-Adjusted Performance

Very Weak

Over the last 90 days Walmart has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Walmart 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

Very Weak

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

Pair Trading with Walmart and Dollar Tree

The main advantage of trading using opposite Walmart and Dollar Tree positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walmart 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 Walmart 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.