Correlation Between Dollarama and Aritzia

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

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

Diversification Opportunities for Dollarama and Aritzia

-0.5

Correlation Coefficient

Dollarama  Aritzia

Very good diversification

The 3 months correlation between Dollarama and Aritzia is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Dollarama and Aritzia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aritzia 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 Aritzia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aritzia has no effect on the direction of Dollarama i.e., Dollarama and Aritzia go up and down completely randomly.

Pair Corralation between Dollarama and Aritzia

Assuming the 90 days trading horizon Dollarama is expected to generate 0.3 times more return on investment than Aritzia. However, Dollarama is 3.34 times less risky than Aritzia. It trades about 0.12 of its potential returns per unit of risk. Aritzia is currently generating about 0.0 per unit of risk. If you would invest  13,973  in Dollarama on December 29, 2024 and sell it today you would earn a total of  1,195  from holding Dollarama or generate 8.55% return on investment over 90 days.

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

Dollarama  vs.  Aritzia

Dollarama

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dollarama are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain essential indicators, Dollarama may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Aritzia

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aritzia has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Aritzia is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Dollarama and Aritzia

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

The idea behind Dollarama and Aritzia 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.