Correlation Between Dollar Tree and CVR Energy

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

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

Diversification Opportunities for Dollar Tree and CVR Energy

0.47

Correlation Coefficient

Dollar Tree  CVR Energy

Very weak diversification

The 3 months correlation between Dollar and CVR is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Dollar Tree and CVR Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVR Energy 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 CVR Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVR Energy has no effect on the direction of Dollar Tree i.e., Dollar Tree and CVR Energy go up and down completely randomly.

Pair Corralation between Dollar Tree and CVR Energy

Assuming the 90 days trading horizon Dollar Tree is expected to generate 0.97 times more return on investment than CVR Energy. However, Dollar Tree is 1.03 times less risky than CVR Energy. It trades about -0.03 of its potential returns per unit of risk. CVR Energy is currently generating about -0.06 per unit of risk. If you would invest  8,413  in Dollar Tree on September 2, 2024 and sell it today you would lose (1,224) from holding Dollar Tree or give up 14.55% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.97%
Values	Daily Returns

Dollar Tree  vs.  CVR Energy

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 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.

CVR Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVR Energy 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 January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Dollar Tree and CVR Energy

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

The idea behind Dollar Tree and CVR Energy 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 Global Correlations module to find global opportunities by holding instruments from different markets.