Correlation Between Dollar Tree and Natural Grocers

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

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

Diversification Opportunities for Dollar Tree and Natural Grocers

0.23

Correlation Coefficient

Dollar Tree  Natural Grocers

Modest diversification

The 3 months correlation between Dollar and Natural is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Dollar Tree and Natural Grocers by in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natural Grocers by 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 Natural Grocers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natural Grocers by has no effect on the direction of Dollar Tree i.e., Dollar Tree and Natural Grocers go up and down completely randomly.

Pair Corralation between Dollar Tree and Natural Grocers

Given the investment horizon of 90 days Dollar Tree is expected to under-perform the Natural Grocers. But the stock apears to be less risky and, when comparing its historical volatility, Dollar Tree is 1.99 times less risky than Natural Grocers. The stock trades about -0.01 of its potential returns per unit of risk. The Natural Grocers by is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  2,923  in Natural Grocers by on September 14, 2024 and sell it today you would earn a total of  1,277  from holding Natural Grocers by or generate 43.69% return on investment over 90 days.

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

Dollar Tree  vs.  Natural Grocers by

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. Even with relatively invariable basic indicators, Dollar Tree is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Natural Grocers by

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Natural Grocers by are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Natural Grocers exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dollar Tree and Natural Grocers

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

The idea behind Dollar Tree and Natural Grocers by 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.