Correlation Between Bank of America and Dollarama

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

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

Diversification Opportunities for Bank of America and Dollarama

-0.04

Correlation Coefficient

Bank of America  Dollarama

Good diversification

The 3 months correlation between Bank and Dollarama is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Dollarama in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dollarama and Bank of America 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 Bank of America 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 Bank of America i.e., Bank of America and Dollarama go up and down completely randomly.

Pair Corralation between Bank of America and Dollarama

Assuming the 90 days trading horizon Bank of America is expected to under-perform the Dollarama. But the stock apears to be less risky and, when comparing its historical volatility, Bank of America is 1.09 times less risky than Dollarama. The stock trades about -0.11 of its potential returns per unit of risk. The Dollarama is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  14,574  in Dollarama on November 29, 2024 and sell it today you would earn a total of  367.00  from holding Dollarama or generate 2.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Bank of America  vs.  Dollarama

Bank of America

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank of America has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Dollarama

Risk-Adjusted Performance

Insignificant

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

Pair Trading with Bank of America and Dollarama

The main advantage of trading using opposite Bank of America and Dollarama positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America 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 Bank of America 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.

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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.