Correlation Between Temple Bar and Dollar Tree

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

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

Diversification Opportunities for Temple Bar and Dollar Tree

0.77

Correlation Coefficient

Temple Bar  Dollar Tree

Poor diversification

The 3 months correlation between Temple and Dollar is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Temple Bar Investment and Dollar Tree in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dollar Tree and Temple Bar 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 Temple Bar Investment 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 Temple Bar i.e., Temple Bar and Dollar Tree go up and down completely randomly.

Pair Corralation between Temple Bar and Dollar Tree

Assuming the 90 days trading horizon Temple Bar is expected to generate 8.02 times less return on investment than Dollar Tree. But when comparing it to its historical volatility, Temple Bar Investment is 2.45 times less risky than Dollar Tree. It trades about 0.06 of its potential returns per unit of risk. Dollar Tree is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  6,862  in Dollar Tree on March 26, 2025 and sell it today you would earn a total of  2,984  from holding Dollar Tree or generate 43.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Temple Bar Investment  vs.  Dollar Tree

Temple Bar Investment

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Temple Bar Investment are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Temple Bar 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

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 uncertain basic indicators, Dollar Tree unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Temple Bar and Dollar Tree

The main advantage of trading using opposite Temple Bar and Dollar Tree positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Temple Bar 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 Temple Bar Investment 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.