Correlation Between Dollarama and PriceSmart

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

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

Diversification Opportunities for Dollarama and PriceSmart

0.44

Correlation Coefficient

Dollarama  PriceSmart

Very weak diversification

The 3 months correlation between Dollarama and PriceSmart is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Dollarama and PriceSmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PriceSmart and Dollarama 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 Dollarama are associated (or correlated) with PriceSmart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PriceSmart has no effect on the direction of Dollarama i.e., Dollarama and PriceSmart go up and down completely randomly.

Pair Corralation between Dollarama and PriceSmart

Assuming the 90 days horizon Dollarama is expected to generate 0.76 times more return on investment than PriceSmart. However, Dollarama is 1.32 times less risky than PriceSmart. It trades about 0.1 of its potential returns per unit of risk. PriceSmart is currently generating about 0.02 per unit of risk. If you would invest  8,979  in Dollarama on August 18, 2024 and sell it today you would earn a total of  1,471  from holding Dollarama or generate 16.38% return on investment over 90 days.

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

Dollarama  vs.  PriceSmart

Dollarama

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dollarama are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Dollarama is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

PriceSmart

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PriceSmart are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable primary indicators, PriceSmart is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Dollarama and PriceSmart

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

The idea behind Dollarama and PriceSmart 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 the Transaction History module to view history of all your transactions and understand their impact on performance.