Correlation Between Dollarama and Target

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

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

Diversification Opportunities for Dollarama and Target

-0.08

Correlation Coefficient

Dollarama  Target

Good diversification

The 3 months correlation between Dollarama and Target is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Dollarama and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target 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 Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target has no effect on the direction of Dollarama i.e., Dollarama and Target go up and down completely randomly.

Pair Corralation between Dollarama and Target

Assuming the 90 days horizon Dollarama is expected to generate 0.58 times more return on investment than Target. However, Dollarama is 1.73 times less risky than Target. It trades about 0.08 of its potential returns per unit of risk. Target is currently generating about 0.01 per unit of risk. If you would invest  5,655  in Dollarama on September 29, 2024 and sell it today you would earn a total of  3,573  from holding Dollarama or generate 63.18% return on investment over 90 days.

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

Dollarama  vs.  Target

Dollarama

Risk-Adjusted Performance

1 of 100

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. Despite nearly stable basic indicators, Dollarama is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Target

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Dollarama and Target

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

The idea behind Dollarama and Target 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.