Correlation Between Costco Wholesale and Dollar Tree

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

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

Diversification Opportunities for Costco Wholesale and Dollar Tree

0.42

Correlation Coefficient

Costco Wholesale  Dollar Tree

Very weak diversification

The 3 months correlation between Costco and Dollar is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and Dollar Tree in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dollar Tree and Costco Wholesale 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 Costco Wholesale Corp 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 Costco Wholesale i.e., Costco Wholesale and Dollar Tree go up and down completely randomly.

Pair Corralation between Costco Wholesale and Dollar Tree

Given the investment horizon of 90 days Costco Wholesale Corp is expected to under-perform the Dollar Tree. But the stock apears to be less risky and, when comparing its historical volatility, Costco Wholesale Corp is 1.97 times less risky than Dollar Tree. The stock trades about -0.05 of its potential returns per unit of risk. The Dollar Tree is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  6,877  in Dollar Tree on January 30, 2025 and sell it today you would earn a total of  1,300  from holding Dollar Tree or generate 18.9% return on investment over 90 days.

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

Costco Wholesale Corp  vs.  Dollar Tree

Costco Wholesale Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Costco Wholesale is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Dollar Tree

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dollar Tree are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Dollar Tree reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Costco Wholesale and Dollar Tree

The main advantage of trading using opposite Costco Wholesale and Dollar Tree positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Costco Wholesale 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 Costco Wholesale Corp 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.