Correlation Between Dollarama and Restaurant Brands

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

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

Diversification Opportunities for Dollarama and Restaurant Brands

0.59

Correlation Coefficient

Dollarama  Restaurant Brands

Very weak diversification

The 3 months correlation between Dollarama and Restaurant is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Dollarama and Restaurant Brands Internationa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Restaurant Brands 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 Restaurant Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Restaurant Brands has no effect on the direction of Dollarama i.e., Dollarama and Restaurant Brands go up and down completely randomly.

Pair Corralation between Dollarama and Restaurant Brands

Assuming the 90 days trading horizon Dollarama is expected to generate 1.26 times more return on investment than Restaurant Brands. However, Dollarama is 1.26 times more volatile than Restaurant Brands International. It trades about 0.1 of its potential returns per unit of risk. Restaurant Brands International is currently generating about 0.08 per unit of risk. If you would invest  13,307  in Dollarama on August 31, 2024 and sell it today you would earn a total of  1,277  from holding Dollarama or generate 9.6% return on investment over 90 days.

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

Dollarama  vs.  Restaurant Brands Internationa

Dollarama

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dollarama are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating essential indicators, Dollarama may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Restaurant Brands

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Restaurant Brands International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Restaurant Brands is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Dollarama and Restaurant Brands

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

The idea behind Dollarama and Restaurant Brands International 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.