Correlation Between Shopify and City Developments

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

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

Diversification Opportunities for Shopify and City Developments

-0.15

Correlation Coefficient

Shopify  City Developments

Good diversification

The 3 months correlation between Shopify and City is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Shopify and City Developments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City Developments 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 City Developments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City Developments has no effect on the direction of Shopify i.e., Shopify and City Developments go up and down completely randomly.

Pair Corralation between Shopify and City Developments

Given the investment horizon of 90 days Shopify is expected to generate 2.61 times more return on investment than City Developments. However, Shopify is 2.61 times more volatile than City Developments. It trades about 0.06 of its potential returns per unit of risk. City Developments is currently generating about -0.06 per unit of risk. If you would invest  5,157  in Shopify on October 26, 2024 and sell it today you would earn a total of  5,611  from holding Shopify or generate 108.8% return on investment over 90 days.

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

Shopify  vs.  City Developments

Shopify

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shopify are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Shopify reported solid returns over the last few months and may actually be approaching a breakup point.

City Developments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days City Developments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, City Developments is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shopify and City Developments

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

The idea behind Shopify and City Developments 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.