Correlation Between Rapid7 and SPS Commerce

Can any of the company-specific risk be diversified away by investing in both Rapid7 and SPS Commerce 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 Rapid7 and SPS Commerce into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rapid7 Inc and SPS Commerce, you can compare the effects of market volatilities on Rapid7 and SPS Commerce 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 Rapid7 with a short position of SPS Commerce. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rapid7 and SPS Commerce.

Diversification Opportunities for Rapid7 and SPS Commerce

0.96

Correlation Coefficient

Rapid7  SPS Commerce

Almost no diversification

The 3 months correlation between Rapid7 and SPS is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Rapid7 Inc and SPS Commerce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPS Commerce and Rapid7 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 Rapid7 Inc are associated (or correlated) with SPS Commerce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPS Commerce has no effect on the direction of Rapid7 i.e., Rapid7 and SPS Commerce go up and down completely randomly.

Pair Corralation between Rapid7 and SPS Commerce

Considering the 90-day investment horizon Rapid7 Inc is expected to under-perform the SPS Commerce. But the stock apears to be less risky and, when comparing its historical volatility, Rapid7 Inc is 1.14 times less risky than SPS Commerce. The stock trades about -0.24 of its potential returns per unit of risk. The SPS Commerce is currently generating about -0.19 of returns per unit of risk over similar time horizon. If you would invest  18,553  in SPS Commerce on December 27, 2024 and sell it today you would lose (4,929) from holding SPS Commerce or give up 26.57% of portfolio value over 90 days.

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

Rapid7 Inc  vs.  SPS Commerce

Rapid7 Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rapid7 Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

SPS Commerce

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPS Commerce has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Rapid7 and SPS Commerce

The main advantage of trading using opposite Rapid7 and SPS Commerce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rapid7 position performs unexpectedly, SPS Commerce 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 SPS Commerce will offset losses from the drop in SPS Commerce's long position.

The idea behind Rapid7 Inc and SPS Commerce 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.