Correlation Between Sprouts Farmers and Dollar General

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

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

Diversification Opportunities for Sprouts Farmers and Dollar General

0.63

Correlation Coefficient

Sprouts Farmers  Dollar General

Poor diversification

The 3 months correlation between Sprouts and Dollar is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Sprouts Farmers Market and Dollar General in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dollar General and Sprouts Farmers 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 Sprouts Farmers Market are associated (or correlated) with Dollar General. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dollar General has no effect on the direction of Sprouts Farmers i.e., Sprouts Farmers and Dollar General go up and down completely randomly.

Pair Corralation between Sprouts Farmers and Dollar General

Considering the 90-day investment horizon Sprouts Farmers Market is expected to generate 2.5 times more return on investment than Dollar General. However, Sprouts Farmers is 2.5 times more volatile than Dollar General. It trades about 0.27 of its potential returns per unit of risk. Dollar General is currently generating about -0.55 per unit of risk. If you would invest  6,257  in Sprouts Farmers Market on February 4, 2024 and sell it today you would earn a total of  1,111  from holding Sprouts Farmers Market or generate 17.76% return on investment over 90 days.

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

Sprouts Farmers Market  vs.  Dollar General

Sprouts Farmers Market

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sprouts Farmers Market are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical and fundamental indicators, Sprouts Farmers displayed solid returns over the last few months and may actually be approaching a breakup point.

Dollar General

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dollar General are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Dollar General is not utilizing all of its potentials. The new stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Sprouts Farmers and Dollar General

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

The idea behind Sprouts Farmers Market and Dollar General 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.