Correlation Between Shopify and BYD Company

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

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

Diversification Opportunities for Shopify and BYD Company

-0.59

Correlation Coefficient

Shopify  BYD Company

Excellent diversification

The 3 months correlation between Shopify and BYD is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Shopify and BYD Company Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BYD Limited 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 BYD Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BYD Limited has no effect on the direction of Shopify i.e., Shopify and BYD Company go up and down completely randomly.

Pair Corralation between Shopify and BYD Company

Assuming the 90 days horizon Shopify is expected to generate 1.45 times more return on investment than BYD Company. However, Shopify is 1.45 times more volatile than BYD Company Limited. It trades about 0.06 of its potential returns per unit of risk. BYD Company Limited is currently generating about 0.04 per unit of risk. If you would invest  5,895  in Shopify on October 22, 2024 and sell it today you would earn a total of  4,287  from holding Shopify or generate 72.72% return on investment over 90 days.

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

Shopify  vs.  BYD Company Limited

Shopify

Risk-Adjusted Performance

11 of 100

Good

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

BYD Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Shopify and BYD Company

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

The idea behind Shopify and BYD Company Limited 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.