Correlation Between Shopify and Microsoft

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

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

Diversification Opportunities for Shopify and Microsoft

0.48

Correlation Coefficient

Shopify  Microsoft

Very weak diversification

The 3 months correlation between Shopify and Microsoft is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Shopify and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Shopify i.e., Shopify and Microsoft go up and down completely randomly.

Pair Corralation between Shopify and Microsoft

Assuming the 90 days horizon Shopify is expected to generate 2.18 times more return on investment than Microsoft. However, Shopify is 2.18 times more volatile than Microsoft. It trades about -0.04 of its potential returns per unit of risk. Microsoft is currently generating about -0.17 per unit of risk. If you would invest  10,542  in Shopify on December 22, 2024 and sell it today you would lose (1,188) from holding Shopify or give up 11.27% of portfolio value over 90 days.

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

Shopify  vs.  Microsoft

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.

Microsoft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile 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 Microsoft

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

The idea behind Shopify and Microsoft 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.