Correlation Between Cronos and Shopify

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

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

Diversification Opportunities for Cronos and Shopify

-0.54

Correlation Coefficient

Cronos  Shopify

Excellent diversification

The 3 months correlation between Cronos and Shopify is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Cronos Group and Shopify in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shopify and Cronos 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 Cronos Group 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 Cronos i.e., Cronos and Shopify go up and down completely randomly.

Pair Corralation between Cronos and Shopify

Assuming the 90 days trading horizon Cronos is expected to generate 31.7 times less return on investment than Shopify. But when comparing it to its historical volatility, Cronos Group is 1.07 times less risky than Shopify. It trades about 0.0 of its potential returns per unit of risk. Shopify is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  5,061  in Shopify on September 25, 2024 and sell it today you would earn a total of  10,644  from holding Shopify or generate 210.31% return on investment over 90 days.

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

Cronos Group  vs.  Shopify

Cronos Group

Risk-Adjusted Performance

1 of 100

Very Weak

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

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. In spite of very unfluctuating basic indicators, Shopify displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cronos and Shopify

The main advantage of trading using opposite Cronos and Shopify positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cronos 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 Cronos Group 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.

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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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.