Correlation Between Shopify and Aurora Cannabis

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

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

Diversification Opportunities for Shopify and Aurora Cannabis

-0.9

Correlation Coefficient

Shopify  Aurora Cannabis

Pay attention - limited upside

The 3 months correlation between Shopify and Aurora is -0.9. Overlapping area represents the amount of risk that can be diversified away by holding Shopify and Aurora Cannabis in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aurora Cannabis and Shopify 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 Shopify are associated (or correlated) with Aurora Cannabis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aurora Cannabis has no effect on the direction of Shopify i.e., Shopify and Aurora Cannabis go up and down completely randomly.

Pair Corralation between Shopify and Aurora Cannabis

Assuming the 90 days trading horizon Shopify is expected to generate 0.53 times more return on investment than Aurora Cannabis. However, Shopify is 1.88 times less risky than Aurora Cannabis. It trades about 0.09 of its potential returns per unit of risk. Aurora Cannabis is currently generating about 0.0 per unit of risk. If you would invest  4,701  in Shopify on September 20, 2024 and sell it today you would earn a total of  10,708  from holding Shopify or generate 227.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Shopify  vs.  Aurora Cannabis

Shopify

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shopify are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Shopify displayed solid returns over the last few months and may actually be approaching a breakup point.

Aurora Cannabis

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aurora Cannabis has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's fundamental drivers remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Shopify and Aurora Cannabis

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

The idea behind Shopify and Aurora Cannabis 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.