Correlation Between Shopify and Square

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

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

Diversification Opportunities for Shopify and Square

0.94

Correlation Coefficient

Shopify  Square

Almost no diversification

The 3 months correlation between Shopify and Square is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Shopify and Square Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Square Inc 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 Square. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Square Inc has no effect on the direction of Shopify i.e., Shopify and Square go up and down completely randomly.

Pair Corralation between Shopify and Square

Assuming the 90 days horizon Shopify is expected to generate 0.8 times more return on investment than Square. However, Shopify is 1.26 times less risky than Square. It trades about 0.03 of its potential returns per unit of risk. Square Inc is currently generating about 0.0 per unit of risk. If you would invest  10,422  in Shopify on September 25, 2024 and sell it today you would earn a total of  104.00  from holding Shopify or generate 1.0% return on investment over 90 days.

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

Shopify  vs.  Square Inc

Shopify

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shopify are ranked lower than 14 (%) 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.

Square Inc

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Square Inc are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Square reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shopify and Square

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

The idea behind Shopify and Square Inc 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.