Correlation Between Trane Technologies and Shopify

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

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

Diversification Opportunities for Trane Technologies and Shopify

0.2

Correlation Coefficient

Trane Technologies  Shopify

Modest diversification

The 3 months correlation between Trane and Shopify is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Trane Technologies plc and Shopify in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shopify and Trane Technologies 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 Trane Technologies plc 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 Trane Technologies i.e., Trane Technologies and Shopify go up and down completely randomly.

Pair Corralation between Trane Technologies and Shopify

Assuming the 90 days trading horizon Trane Technologies plc is expected to under-perform the Shopify. But the stock apears to be less risky and, when comparing its historical volatility, Trane Technologies plc is 2.16 times less risky than Shopify. The stock trades about -0.15 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  566.00  in Shopify on December 24, 2024 and sell it today you would lose (44.00) from holding Shopify or give up 7.77% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Trane Technologies plc  vs.  Shopify

Trane Technologies plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Trane Technologies plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company 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. Despite somewhat strong technical indicators, Shopify is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Trane Technologies and Shopify

The main advantage of trading using opposite Trane Technologies and Shopify positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Trane Technologies 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 Trane Technologies plc 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.