Correlation Between Coca Cola and Dollarama

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

By analyzing existing cross correlation between The Coca Cola and Dollarama, you can compare the effects of market volatilities on Coca Cola and Dollarama 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 Coca Cola with a short position of Dollarama. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and Dollarama.

Diversification Opportunities for Coca Cola and Dollarama

-0.71

Correlation Coefficient

Coca Cola  Dollarama

Pay attention - limited upside

The 3 months correlation between Coca and Dollarama is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and Dollarama in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dollarama and Coca Cola 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 The Coca Cola are associated (or correlated) with Dollarama. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dollarama has no effect on the direction of Coca Cola i.e., Coca Cola and Dollarama go up and down completely randomly.

Pair Corralation between Coca Cola and Dollarama

Allowing for the 90-day total investment horizon The Coca Cola is expected to under-perform the Dollarama. But the stock apears to be less risky and, when comparing its historical volatility, The Coca Cola is 1.26 times less risky than Dollarama. The stock trades about -0.09 of its potential returns per unit of risk. The Dollarama is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  10,766  in Dollarama on September 5, 2024 and sell it today you would lose (139.00) from holding Dollarama or give up 1.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

The Coca Cola  vs.  Dollarama

Coca Cola

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Coca Cola has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

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. Despite nearly weak basic indicators, Dollarama may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Coca Cola and Dollarama

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

The idea behind The Coca Cola and Dollarama 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.