Correlation Between Dollar Tree and Target
Can any of the company-specific risk be diversified away by investing in both Dollar Tree and Target 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 Dollar Tree and Target into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dollar Tree and Target, you can compare the effects of market volatilities on Dollar Tree and Target 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 Dollar Tree with a short position of Target. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dollar Tree and Target.
Diversification Opportunities for Dollar Tree and Target
-0.18 | Correlation Coefficient |
Good diversification
The 3 months correlation between Dollar and Target is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Dollar Tree and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target and Dollar Tree 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 Dollar Tree are associated (or correlated) with Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target has no effect on the direction of Dollar Tree i.e., Dollar Tree and Target go up and down completely randomly.
Pair Corralation between Dollar Tree and Target
Given the investment horizon of 90 days Dollar Tree is expected to generate 0.96 times more return on investment than Target. However, Dollar Tree is 1.04 times less risky than Target. It trades about -0.01 of its potential returns per unit of risk. Target is currently generating about -0.01 per unit of risk. If you would invest 16,711 in Dollar Tree on January 18, 2024 and sell it today you would lose (4,305) from holding Dollar Tree or give up 25.76% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dollar Tree vs. Target
Performance |
| Timeline |
| Dollar Tree |
| Target |
Dollar Tree and Target Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dollar Tree and Target
The main advantage of trading using opposite Dollar Tree and Target positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dollar Tree position performs unexpectedly, Target 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 Target will offset losses from the drop in Target's long position.| Dollar Tree vs. BJs Wholesale Club | Dollar Tree vs. Big Lots | Dollar Tree vs. Walmart | Dollar Tree vs. Target |
| Target vs. Costco Wholesale Corp | Target vs. BJs Wholesale Club | Target vs. Dollar Tree | Target vs. Dollar General |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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