Correlation Between PriceSmart and Dollar Tree
Can any of the company-specific risk be diversified away by investing in both PriceSmart 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 PriceSmart and Dollar Tree into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PriceSmart and Dollar Tree, you can compare the effects of market volatilities on PriceSmart 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 PriceSmart with a short position of Dollar Tree. Check out your portfolio center. Please also check ongoing floating volatility patterns of PriceSmart and Dollar Tree.
Diversification Opportunities for PriceSmart and Dollar Tree
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between PriceSmart and Dollar is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding PriceSmart and Dollar Tree in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dollar Tree and PriceSmart 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 PriceSmart 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 PriceSmart i.e., PriceSmart and Dollar Tree go up and down completely randomly.
Pair Corralation between PriceSmart and Dollar Tree
Given the investment horizon of 90 days PriceSmart is expected to under-perform the Dollar Tree. But the stock apears to be less risky and, when comparing its historical volatility, PriceSmart is 1.15 times less risky than Dollar Tree. The stock trades about -0.09 of its potential returns per unit of risk. The Dollar Tree is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest 7,373 in Dollar Tree on October 24, 2024 and sell it today you would lose (27.00) from holding Dollar Tree or give up 0.37% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
PriceSmart vs. Dollar Tree
Performance |
| Timeline |
| PriceSmart |
| Dollar Tree |
PriceSmart and Dollar Tree Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PriceSmart and Dollar Tree
The main advantage of trading using opposite PriceSmart and Dollar Tree positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PriceSmart 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.| PriceSmart vs. Wal Mart de | PriceSmart vs. Pan Pacific International | PriceSmart vs. Dollarama | PriceSmart vs. Dollar General |
| Dollar Tree vs. BJs Wholesale Club | Dollar Tree vs. Walmart | Dollar Tree vs. Target | Dollar Tree vs. Dollar General |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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