Correlation Between Dollar Tree and Costco Wholesale
Can any of the company-specific risk be diversified away by investing in both Dollar Tree and Costco Wholesale 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 Costco Wholesale into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dollar Tree and Costco Wholesale, you can compare the effects of market volatilities on Dollar Tree and Costco Wholesale 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 Costco Wholesale. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dollar Tree and Costco Wholesale.
Diversification Opportunities for Dollar Tree and Costco Wholesale
-0.19 | Correlation Coefficient |
Good diversification
The 3 months correlation between Dollar and Costco is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Dollar Tree and Costco Wholesale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Costco Wholesale 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 Costco Wholesale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Costco Wholesale has no effect on the direction of Dollar Tree i.e., Dollar Tree and Costco Wholesale go up and down completely randomly.
Pair Corralation between Dollar Tree and Costco Wholesale
Assuming the 90 days trading horizon Dollar Tree is expected to generate 3.68 times less return on investment than Costco Wholesale. In addition to that, Dollar Tree is 1.2 times more volatile than Costco Wholesale. It trades about 0.06 of its total potential returns per unit of risk. Costco Wholesale is currently generating about 0.25 per unit of volatility. If you would invest 1,792,422 in Costco Wholesale on August 24, 2024 and sell it today you would earn a total of 157,478 from holding Costco Wholesale or generate 8.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Dollar Tree vs. Costco Wholesale
Performance |
| Timeline |
| Dollar Tree |
| Costco Wholesale |
Dollar Tree and Costco Wholesale Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dollar Tree and Costco Wholesale
The main advantage of trading using opposite Dollar Tree and Costco Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dollar Tree position performs unexpectedly, Costco Wholesale 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 Costco Wholesale will offset losses from the drop in Costco Wholesale's long position.| Dollar Tree vs. Burlington Stores | Dollar Tree vs. Verizon Communications | Dollar Tree vs. DXC Technology | Dollar Tree vs. Cognizant Technology Solutions |
| Costco Wholesale vs. Grupo Sports World | Costco Wholesale vs. Burlington Stores | Costco Wholesale vs. Capital One Financial | Costco Wholesale vs. Genworth Financial |
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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