Correlation Between National Beverage and Dollarama

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

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

Diversification Opportunities for National Beverage and Dollarama

0.74

Correlation Coefficient

National Beverage  Dollarama

Poor diversification

The 3 months correlation between National and Dollarama is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding National Beverage Corp and Dollarama in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dollarama and National Beverage 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 National Beverage Corp are associated (or correlated) with Dollarama. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dollarama has no effect on the direction of National Beverage i.e., National Beverage and Dollarama go up and down completely randomly.

Pair Corralation between National Beverage and Dollarama

Assuming the 90 days horizon National Beverage is expected to generate 3.57 times less return on investment than Dollarama. In addition to that, National Beverage is 1.47 times more volatile than Dollarama. It trades about 0.02 of its total potential returns per unit of risk. Dollarama is currently generating about 0.09 per unit of volatility. If you would invest  5,451  in Dollarama on September 13, 2024 and sell it today you would earn a total of  4,045  from holding Dollarama or generate 74.21% return on investment over 90 days.

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

National Beverage Corp  vs.  Dollarama

National Beverage Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in National Beverage Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, National Beverage may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 fragile basic indicators, Dollarama may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with National Beverage and Dollarama

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

The idea behind National Beverage Corp and Dollarama 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.