Correlation Between Salesforce and Shopify

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

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

Diversification Opportunities for Salesforce and Shopify

0.15

Correlation Coefficient

Salesforce  Shopify

Average diversification

The 3 months correlation between Salesforce and Shopify is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Salesforce and Shopify in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shopify and Salesforce 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 Salesforce are associated (or correlated) with Shopify. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shopify has no effect on the direction of Salesforce i.e., Salesforce and Shopify go up and down completely randomly.

Pair Corralation between Salesforce and Shopify

Considering the 90-day investment horizon Salesforce is expected to under-perform the Shopify. But the stock apears to be less risky and, when comparing its historical volatility, Salesforce is 1.27 times less risky than Shopify. The stock trades about -0.07 of its potential returns per unit of risk. The Shopify is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  16,184  in Shopify on November 29, 2024 and sell it today you would earn a total of  70.00  from holding Shopify or generate 0.43% return on investment over 90 days.

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

Salesforce  vs.  Shopify

Salesforce

Risk-Adjusted Performance

Very Weak

Over the last 90 days Salesforce has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Shopify

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shopify are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Shopify is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Salesforce and Shopify

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

The idea behind Salesforce and Shopify 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.

Check out your portfolio center.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.