Correlation Between NVIDIA and Shopify

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

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

Diversification Opportunities for NVIDIA and Shopify

0.23

Correlation Coefficient

NVIDIA  Shopify

Modest diversification

The 3 months correlation between NVIDIA and Shopify is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Shopify in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shopify and NVIDIA 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 NVIDIA 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 NVIDIA i.e., NVIDIA and Shopify go up and down completely randomly.

Pair Corralation between NVIDIA and Shopify

Assuming the 90 days horizon NVIDIA is expected to generate 3.53 times less return on investment than Shopify. But when comparing it to its historical volatility, NVIDIA is 1.55 times less risky than Shopify. It trades about 0.07 of its potential returns per unit of risk. Shopify is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  7,385  in Shopify on October 26, 2024 and sell it today you would earn a total of  2,777  from holding Shopify or generate 37.6% return on investment over 90 days.

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

NVIDIA  vs.  Shopify

NVIDIA

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NVIDIA may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Shopify

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shopify are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Shopify reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NVIDIA and Shopify

The main advantage of trading using opposite NVIDIA and Shopify positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NVIDIA 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 NVIDIA 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.