Correlation Between Dollar Tree and Diageo PLC

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

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

Diversification Opportunities for Dollar Tree and Diageo PLC

-0.63

Correlation Coefficient

Dollar Tree  Diageo PLC

Excellent diversification

The 3 months correlation between Dollar and Diageo is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Dollar Tree and Diageo PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo PLC ADR 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 Diageo PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diageo PLC ADR has no effect on the direction of Dollar Tree i.e., Dollar Tree and Diageo PLC go up and down completely randomly.

Pair Corralation between Dollar Tree and Diageo PLC

Given the investment horizon of 90 days Dollar Tree is expected to under-perform the Diageo PLC. In addition to that, Dollar Tree is 2.4 times more volatile than Diageo PLC ADR. It trades about -0.16 of its total potential returns per unit of risk. Diageo PLC ADR is currently generating about 0.05 per unit of volatility. If you would invest  12,911  in Diageo PLC ADR on July 11, 2024 and sell it today you would earn a total of  524.00  from holding Diageo PLC ADR or generate 4.06% return on investment over 90 days.

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

Dollar Tree  vs.  Diageo PLC ADR

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 weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in November 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Diageo PLC ADR

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Diageo PLC ADR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Diageo PLC is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Dollar Tree and Diageo PLC

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

The idea behind Dollar Tree and Diageo PLC ADR 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.