Correlation Between Amazon and DOLLAR TREE
Can any of the company-specific risk be diversified away by investing in both Amazon 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 Amazon and DOLLAR TREE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and DOLLAR TREE, you can compare the effects of market volatilities on Amazon 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 Amazon with a short position of DOLLAR TREE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and DOLLAR TREE.
Diversification Opportunities for Amazon and DOLLAR TREE
-0.59 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Amazon and DOLLAR is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and DOLLAR TREE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DOLLAR TREE and Amazon 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 Amazon Inc 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 Amazon i.e., Amazon and DOLLAR TREE go up and down completely randomly.
Pair Corralation between Amazon and DOLLAR TREE
Assuming the 90 days trading horizon Amazon Inc is expected to generate 0.63 times more return on investment than DOLLAR TREE. However, Amazon Inc is 1.59 times less risky than DOLLAR TREE. It trades about 0.21 of its potential returns per unit of risk. DOLLAR TREE is currently generating about 0.05 per unit of risk. If you would invest 17,262 in Amazon Inc on August 25, 2024 and sell it today you would earn a total of 1,694 from holding Amazon Inc or generate 9.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Amazon Inc vs. DOLLAR TREE
Performance |
| Timeline |
| Amazon Inc |
| DOLLAR TREE |
Amazon and DOLLAR TREE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amazon and DOLLAR TREE
The main advantage of trading using opposite Amazon and DOLLAR TREE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon 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 Amazon Inc 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.| DOLLAR TREE vs. Goodyear Tire Rubber | DOLLAR TREE vs. APPLIED MATERIALS | DOLLAR TREE vs. National Health Investors | DOLLAR TREE vs. Bumrungrad Hospital Public |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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