Correlation Between Target and Dollar General

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

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

Diversification Opportunities for Target and Dollar General

0.9

Correlation Coefficient

Target  Dollar General

Almost no diversification

The 3 months correlation between Target and Dollar is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Target and Dollar General in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dollar General 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 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 Target i.e., Target and Dollar General go up and down completely randomly.

Pair Corralation between Target and Dollar General

Considering the 90-day investment horizon Target is expected to generate 0.99 times more return on investment than Dollar General. However, Target is 1.01 times less risky than Dollar General. It trades about 0.02 of its potential returns per unit of risk. Dollar General is currently generating about -0.06 per unit of risk. If you would invest  15,253  in Target on January 28, 2024 and sell it today you would earn a total of  1,221  from holding Target or generate 8.0% return on investment over 90 days.

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

Target  vs.  Dollar General

Target

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Target are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Target unveiled solid returns over the last few months and may actually be approaching a breakup point.

Dollar General

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dollar General are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly sluggish 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 Target and Dollar General

The main advantage of trading using opposite Target and Dollar General positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Target 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 Target 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .