Correlation Between Restaurant Brands and Shopify

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

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

Diversification Opportunities for Restaurant Brands and Shopify

0.23

Correlation Coefficient

Restaurant Brands  Shopify

Modest diversification

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

Pair Corralation between Restaurant Brands and Shopify

Assuming the 90 days trading horizon Restaurant Brands International is expected to under-perform the Shopify. But the stock apears to be less risky and, when comparing its historical volatility, Restaurant Brands International is 2.2 times less risky than Shopify. The stock trades about -0.06 of its potential returns per unit of risk. The Shopify is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  15,747  in Shopify on December 3, 2024 and sell it today you would lose (292.00) from holding Shopify or give up 1.85% of portfolio value over 90 days.

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

Restaurant Brands Internationa  vs.  Shopify

Restaurant Brands

Risk-Adjusted Performance

Very Weak

Over the last 90 days Restaurant Brands International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Restaurant Brands is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Shopify

Risk-Adjusted Performance

Weak

Over the last 90 days Shopify has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Shopify is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Restaurant Brands and Shopify

The main advantage of trading using opposite Restaurant Brands and Shopify positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Restaurant Brands 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 Restaurant Brands International 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 Global Correlations module to find global opportunities by holding instruments from different markets.