Correlation Between MicroStrategy Incorporated and Shopify

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

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

Diversification Opportunities for MicroStrategy Incorporated and Shopify

0.91

Correlation Coefficient

MicroStrategy Incorporated  Shopify

Almost no diversification

The 3 months correlation between MicroStrategy and Shopify is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding MicroStrategy Incorporated and Shopify in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shopify and MicroStrategy Incorporated 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 MicroStrategy Incorporated 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 MicroStrategy Incorporated i.e., MicroStrategy Incorporated and Shopify go up and down completely randomly.

Pair Corralation between MicroStrategy Incorporated and Shopify

Given the investment horizon of 90 days MicroStrategy Incorporated is expected to generate 1.81 times more return on investment than Shopify. However, MicroStrategy Incorporated is 1.81 times more volatile than Shopify. It trades about 0.14 of its potential returns per unit of risk. Shopify is currently generating about 0.16 per unit of risk. If you would invest  16,274  in MicroStrategy Incorporated on August 30, 2024 and sell it today you would earn a total of  22,610  from holding MicroStrategy Incorporated or generate 138.93% return on investment over 90 days.

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

MicroStrategy Incorporated  vs.  Shopify

MicroStrategy Incorporated

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MicroStrategy Incorporated are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, MicroStrategy Incorporated reported solid returns over the last few months and may actually be approaching a breakup point.

Shopify

Risk-Adjusted Performance

16 of 100

Solid

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

Pair Trading with MicroStrategy Incorporated and Shopify

The main advantage of trading using opposite MicroStrategy Incorporated and Shopify positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroStrategy Incorporated 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 MicroStrategy Incorporated 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.