Correlation Between Big Lots and Dollar General

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

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

Diversification Opportunities for Big Lots and Dollar General

-0.63

Correlation Coefficient

Big Lots  Dollar General

Excellent diversification

The 3 months correlation between Big and Dollar is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Big Lots and Dollar General in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dollar General and Big Lots 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 Big Lots are associated (or correlated) with Dollar General. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dollar General has no effect on the direction of Big Lots i.e., Big Lots and Dollar General go up and down completely randomly.

Pair Corralation between Big Lots and Dollar General

Considering the 90-day investment horizon Big Lots is expected to under-perform the Dollar General. In addition to that, Big Lots is 2.73 times more volatile than Dollar General. It trades about -0.02 of its total potential returns per unit of risk. Dollar General is currently generating about -0.05 per unit of volatility. If you would invest  20,531  in Dollar General on January 19, 2024 and sell it today you would lose (6,082) from holding Dollar General or give up 29.62% of portfolio value over 90 days.

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

Big Lots  vs.  Dollar General

Big Lots

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Big Lots has generated negative risk-adjusted returns adding no value to investors with long positions. Despite sluggish performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Dollar General

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dollar General are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Dollar General may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Big Lots and Dollar General

The main advantage of trading using opposite Big Lots and Dollar General positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big Lots position performs unexpectedly, Dollar General 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 General will offset losses from the drop in Dollar General's long position.

The idea behind Big Lots and Dollar General 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.