Correlation Between Pan Pacific and Dollarama

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

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

Diversification Opportunities for Pan Pacific and Dollarama

0.23

Correlation Coefficient

Pan Pacific  Dollarama

Modest diversification

The 3 months correlation between Pan and Dollarama is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Pan Pacific International and Dollarama in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dollarama and Pan Pacific 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 Pan Pacific International 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 Pan Pacific i.e., Pan Pacific and Dollarama go up and down completely randomly.

Pair Corralation between Pan Pacific and Dollarama

Assuming the 90 days horizon Pan Pacific International is expected to under-perform the Dollarama. In addition to that, Pan Pacific is 1.42 times more volatile than Dollarama. It trades about -0.14 of its total potential returns per unit of risk. Dollarama is currently generating about 0.08 per unit of volatility. If you would invest  8,396  in Dollarama on February 5, 2024 and sell it today you would earn a total of  164.00  from holding Dollarama or generate 1.95% return on investment over 90 days.

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

Pan Pacific International  vs.  Dollarama

Pan Pacific International

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pan Pacific International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Pan Pacific may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Dollarama

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dollarama are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Dollarama reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pan Pacific and Dollarama

The main advantage of trading using opposite Pan Pacific and Dollarama positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pan Pacific 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 Pan Pacific International 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.