Correlation Between Dollarama and Shopify

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

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

Diversification Opportunities for Dollarama and Shopify

0.22

Correlation Coefficient

Dollarama  Shopify

Modest diversification

The 3 months correlation between Dollarama and Shopify is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Dollarama and Shopify in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shopify 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 Shopify. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shopify has no effect on the direction of Dollarama i.e., Dollarama and Shopify go up and down completely randomly.

Pair Corralation between Dollarama and Shopify

Assuming the 90 days trading horizon Dollarama is expected to generate 0.44 times more return on investment than Shopify. However, Dollarama is 2.29 times less risky than Shopify. It trades about 0.02 of its potential returns per unit of risk. Shopify is currently generating about 0.0 per unit of risk. If you would invest  14,807  in Dollarama on December 3, 2024 and sell it today you would earn a total of  142.00  from holding Dollarama or generate 0.96% return on investment over 90 days.

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

Dollarama  vs.  Shopify

Dollarama

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dollarama are ranked lower than 1 (%) 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.

Shopify

Risk-Adjusted Performance

Weak

Over the last 90 days Shopify has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Shopify 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 Shopify

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

The idea behind Dollarama and Shopify 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..