Correlation Between Shopify and Datadog

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

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

Diversification Opportunities for Shopify and Datadog

0.65

Correlation Coefficient

Shopify  Datadog

Poor diversification

The 3 months correlation between Shopify and Datadog is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Shopify and Datadog in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Datadog and Shopify 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 Shopify are associated (or correlated) with Datadog. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Datadog has no effect on the direction of Shopify i.e., Shopify and Datadog go up and down completely randomly.

Pair Corralation between Shopify and Datadog

Assuming the 90 days horizon Shopify is expected to generate 1.39 times more return on investment than Datadog. However, Shopify is 1.39 times more volatile than Datadog. It trades about -0.04 of its potential returns per unit of risk. Datadog is currently generating about -0.21 per unit of risk. If you would invest  10,188  in Shopify on December 30, 2024 and sell it today you would lose (1,271) from holding Shopify or give up 12.48% of portfolio value over 90 days.

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

Shopify  vs.  Datadog

Shopify

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shopify has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Datadog

Risk-Adjusted Performance

Very Weak

Over the last 90 days Datadog has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Shopify and Datadog

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

The idea behind Shopify and Datadog 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.