Correlation Between Descartes Systems and Shopify

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

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

Diversification Opportunities for Descartes Systems and Shopify

0.15

Correlation Coefficient

Descartes Systems  Shopify

Average diversification

The 3 months correlation between Descartes and Shopify is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Descartes Systems Group and Shopify in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shopify and Descartes Systems 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 Descartes Systems 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 Descartes Systems i.e., Descartes Systems and Shopify go up and down completely randomly.

Pair Corralation between Descartes Systems and Shopify

Given the investment horizon of 90 days Descartes Systems Group is expected to under-perform the Shopify. But the stock apears to be less risky and, when comparing its historical volatility, Descartes Systems Group is 2.01 times less risky than Shopify. The stock trades about -0.04 of its potential returns per unit of risk. The Shopify is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  11,560  in Shopify on November 29, 2024 and sell it today you would lose (477.00) from holding Shopify or give up 4.13% of portfolio value over 90 days.

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

Descartes Systems Group  vs.  Shopify

Descartes Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Descartes Systems Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Descartes Systems is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

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. Even with relatively invariable basic indicators, Shopify is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Descartes Systems and Shopify

The main advantage of trading using opposite Descartes Systems and Shopify positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Descartes Systems 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 Descartes Systems 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.