Correlation Between Big Lots and Dollar Tree

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Can any of the company-specific risk be diversified away by investing in both Big Lots 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 Big Lots and Dollar Tree into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Big Lots and Dollar Tree, you can compare the effects of market volatilities on Big Lots 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 Big Lots with a short position of Dollar Tree. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big Lots and Dollar Tree.

Diversification Opportunities for Big Lots and Dollar Tree

-0.4
  Correlation Coefficient

Very good diversification

The 3 months correlation between Big Lots and Dollar is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Big Lots and Dollar Tree in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dollar Tree and Big Lots 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 Big Lots 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 Big Lots i.e., Big Lots and Dollar Tree go up and down completely randomly.

Pair Corralation between Big Lots and Dollar Tree

Considering the 90-day investment horizon Big Lots is expected to under-perform the Dollar Tree. In addition to that, Big Lots is 1.5 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 0.05 per unit of volatility. If you would invest  10,264  in Dollar Tree on May 17, 2022 and sell it today you would earn a total of  6,308  from holding Dollar Tree or generate 61.46% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Big Lots  vs.  Dollar Tree

 Performance (%) 
       Timeline  
Big Lots 
Big Lots Performance
0 of 100
Over the last 90 days Big Lots has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's forward indicators remain rather sound which may send shares a bit higher in September 2022. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Big Lots Price Channel

Dollar Tree 
Dollar Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Dollar Tree are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Dollar Tree may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Dollar Price Channel

Big Lots and Dollar Tree Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Big Lots and Dollar Tree

The main advantage of trading using opposite Big Lots and Dollar Tree positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big Lots 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 Big Lots 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.
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.

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