Correlation Between Shopify and Cineplex

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

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

Diversification Opportunities for Shopify and Cineplex

-0.51

Correlation Coefficient

Shopify  Cineplex

Excellent diversification

The 3 months correlation between Shopify and Cineplex is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Shopify and Cineplex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cineplex 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 Cineplex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cineplex has no effect on the direction of Shopify i.e., Shopify and Cineplex go up and down completely randomly.

Pair Corralation between Shopify and Cineplex

Assuming the 90 days trading horizon Shopify is expected to generate 2.2 times more return on investment than Cineplex. However, Shopify is 2.2 times more volatile than Cineplex. It trades about 0.25 of its potential returns per unit of risk. Cineplex is currently generating about 0.0 per unit of risk. If you would invest  9,658  in Shopify on August 31, 2024 and sell it today you would earn a total of  6,169  from holding Shopify or generate 63.87% return on investment over 90 days.

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

Shopify  vs.  Cineplex

Shopify

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shopify are ranked lower than 19 (%) 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.

Cineplex

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Shopify and Cineplex

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

The idea behind Shopify and Cineplex 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.