Correlation Between Varta AG and Dollar Tree

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

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

Diversification Opportunities for Varta AG and Dollar Tree

-0.48

Correlation Coefficient

Varta AG  Dollar Tree

Very good diversification

The 3 months correlation between Varta and Dollar is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Varta AG and Dollar Tree in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dollar Tree and Varta AG 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 Varta AG 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 Varta AG i.e., Varta AG and Dollar Tree go up and down completely randomly.

Pair Corralation between Varta AG and Dollar Tree

Assuming the 90 days trading horizon Varta AG is expected to under-perform the Dollar Tree. In addition to that, Varta AG is 3.42 times more volatile than Dollar Tree. It trades about -0.02 of its total potential returns per unit of risk. Dollar Tree is currently generating about -0.04 per unit of volatility. If you would invest  13,428  in Dollar Tree on September 29, 2024 and sell it today you would lose (6,156) from holding Dollar Tree or give up 45.84% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Varta AG  vs.  Dollar Tree

Varta AG

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Varta AG are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Varta AG exhibited solid returns over the last few months and may actually be approaching a breakup point.

Dollar Tree

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dollar Tree are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Dollar Tree reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Varta AG and Dollar Tree

The main advantage of trading using opposite Varta AG and Dollar Tree positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Varta AG 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 Varta AG 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.

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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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.