Correlation Between Target and Dollar Tree

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

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

Diversification Opportunities for Target and Dollar Tree

-0.34

Correlation Coefficient

Target  Dollar Tree

Very good diversification

The 3 months correlation between Target and Dollar is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Target and Dollar Tree in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dollar Tree 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 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 Target i.e., Target and Dollar Tree go up and down completely randomly.

Pair Corralation between Target and Dollar Tree

Considering the 90-day investment horizon Target is expected to generate 1.02 times more return on investment than Dollar Tree. However, Target is 1.02 times more volatile than Dollar Tree. It trades about -0.21 of its potential returns per unit of risk. Dollar Tree is currently generating about -0.23 per unit of risk. If you would invest  16,970  in Target on February 7, 2024 and sell it today you would lose (929.00) from holding Target or give up 5.47% of portfolio value over 90 days.

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

Target  vs.  Dollar Tree

Target

Risk-Adjusted Performance

6 of 100

Modest

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

Dollar Tree

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dollar Tree has generated negative risk-adjusted returns adding no value to investors with long positions. Even with abnormal performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in June 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Target and Dollar Tree

The main advantage of trading using opposite Target and Dollar Tree positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Target 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 Target 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.