Correlation Between Grocery Outlet and Dollar Tree

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

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

Diversification Opportunities for Grocery Outlet and Dollar Tree

-0.03

Correlation Coefficient

Grocery Outlet  Dollar Tree

Good diversification

The 3 months correlation between Grocery and Dollar is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Grocery Outlet Holding and Dollar Tree in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dollar Tree and Grocery Outlet 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 Grocery Outlet Holding 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 Grocery Outlet i.e., Grocery Outlet and Dollar Tree go up and down completely randomly.

Pair Corralation between Grocery Outlet and Dollar Tree

Allowing for the 90-day total investment horizon Grocery Outlet Holding is expected to under-perform the Dollar Tree. In addition to that, Grocery Outlet is 3.65 times more volatile than Dollar Tree. It trades about -0.25 of its total potential returns per unit of risk. Dollar Tree is currently generating about -0.27 per unit of volatility. If you would invest  13,025  in Dollar Tree on February 11, 2024 and sell it today you would lose (921.00) from holding Dollar Tree or give up 7.07% of portfolio value over 90 days.

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

Grocery Outlet Holding  vs.  Dollar Tree

Grocery Outlet Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Grocery Outlet Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in June 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

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 weak 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 Grocery Outlet and Dollar Tree

The main advantage of trading using opposite Grocery Outlet and Dollar Tree positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Grocery Outlet 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 Grocery Outlet Holding 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.