Correlation Between Dollar Tree and CARSALES

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

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

Diversification Opportunities for Dollar Tree and CARSALES

0.01

Correlation Coefficient

Dollar Tree  CARSALES

Significant diversification

The 3 months correlation between Dollar and CARSALES is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Dollar Tree and CARSALESCOM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CARSALESCOM and Dollar Tree 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 Dollar Tree are associated (or correlated) with CARSALES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CARSALESCOM has no effect on the direction of Dollar Tree i.e., Dollar Tree and CARSALES go up and down completely randomly.

Pair Corralation between Dollar Tree and CARSALES

Assuming the 90 days horizon Dollar Tree is expected to under-perform the CARSALES. In addition to that, Dollar Tree is 1.49 times more volatile than CARSALESCOM. It trades about -0.04 of its total potential returns per unit of risk. CARSALESCOM is currently generating about 0.09 per unit of volatility. If you would invest  1,292  in CARSALESCOM on September 3, 2024 and sell it today you would earn a total of  1,268  from holding CARSALESCOM or generate 98.14% return on investment over 90 days.

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

Dollar Tree  vs.  CARSALESCOM

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. Despite nearly stable basic indicators, Dollar Tree is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

CARSALESCOM

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CARSALESCOM are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, CARSALES exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dollar Tree and CARSALES

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

The idea behind Dollar Tree and CARSALESCOM 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.