Correlation Between Waters Corp and Dollar Tree

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

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

Diversification Opportunities for Waters Corp and Dollar Tree

0.62

Correlation Coefficient

Waters Corp  Dollar Tree

Poor diversification

The 3 months correlation between Waters and Dollar is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Waters Corp and Dollar Tree in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dollar Tree and Waters Corp 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 Waters Corp 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 Waters Corp i.e., Waters Corp and Dollar Tree go up and down completely randomly.

Pair Corralation between Waters Corp and Dollar Tree

Assuming the 90 days trading horizon Waters Corp is expected to generate 1.0 times more return on investment than Dollar Tree. However, Waters Corp is 1.0 times more volatile than Dollar Tree. It trades about 0.02 of its potential returns per unit of risk. Dollar Tree is currently generating about -0.07 per unit of risk. If you would invest  26,979  in Waters Corp on April 12, 2024 and sell it today you would earn a total of  1,580  from holding Waters Corp or generate 5.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.61%
Values	Daily Returns

Waters Corp  vs.  Dollar Tree

Waters Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Waters Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private 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. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in August 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Waters Corp and Dollar Tree

The main advantage of trading using opposite Waters Corp and Dollar Tree positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Waters Corp 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 Waters Corp 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.