Correlation Between Dollarama and Costco Wholesale

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

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

Diversification Opportunities for Dollarama and Costco Wholesale

0.0

Correlation Coefficient

Dollarama  Costco Wholesale

Pay attention - limited upside

The 3 months correlation between Dollarama and Costco is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Dollarama and Costco Wholesale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Costco Wholesale 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 Costco Wholesale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Costco Wholesale has no effect on the direction of Dollarama i.e., Dollarama and Costco Wholesale go up and down completely randomly.

Pair Corralation between Dollarama and Costco Wholesale

Assuming the 90 days horizon Dollarama is expected to generate 0.67 times more return on investment than Costco Wholesale. However, Dollarama is 1.49 times less risky than Costco Wholesale. It trades about 0.04 of its potential returns per unit of risk. Costco Wholesale is currently generating about -0.04 per unit of risk. If you would invest  9,377  in Dollarama on December 27, 2024 and sell it today you would earn a total of  227.00  from holding Dollarama or generate 2.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Dollarama  vs.  Costco Wholesale

Dollarama

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dollarama are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Dollarama is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Costco Wholesale

Risk-Adjusted Performance

Very Weak

Over the last 90 days Costco Wholesale has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Costco Wholesale is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Dollarama and Costco Wholesale

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

The idea behind Dollarama and Costco Wholesale 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.