Correlation Between DOLLAR TREE and Diageo Plc

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

By analyzing existing cross correlation between DOLLAR TREE and Diageo plc, you can compare the effects of market volatilities on DOLLAR TREE and Diageo Plc 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 Diageo Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of DOLLAR TREE and Diageo Plc.

Diversification Opportunities for DOLLAR TREE and Diageo Plc

-0.71

Correlation Coefficient

DOLLAR TREE  Diageo Plc

Pay attention - limited upside

The 3 months correlation between DOLLAR and Diageo is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding DOLLAR TREE and Diageo plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo plc 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 Diageo Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diageo plc has no effect on the direction of DOLLAR TREE i.e., DOLLAR TREE and Diageo Plc go up and down completely randomly.

Pair Corralation between DOLLAR TREE and Diageo Plc

Assuming the 90 days trading horizon DOLLAR TREE is expected to generate 1.73 times more return on investment than Diageo Plc. However, DOLLAR TREE is 1.73 times more volatile than Diageo plc. It trades about 0.19 of its potential returns per unit of risk. Diageo plc is currently generating about -0.1 per unit of risk. If you would invest  6,995  in DOLLAR TREE on April 20, 2025 and sell it today you would earn a total of  2,229  from holding DOLLAR TREE or generate 31.87% return on investment over 90 days.

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

DOLLAR TREE   vs.  Diageo plc

DOLLAR TREE

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DOLLAR TREE are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, DOLLAR TREE unveiled solid returns over the last few months and may actually be approaching a breakup point.

Diageo plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diageo plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's forward indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with DOLLAR TREE and Diageo Plc

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

The idea behind DOLLAR TREE and Diageo plc 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.