Correlation Between Shopify and Compass

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

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

Diversification Opportunities for Shopify and Compass

-0.05

Correlation Coefficient

Shopify  Compass

Good diversification

The 3 months correlation between Shopify and Compass is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Shopify and Compass in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass 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 Compass. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compass has no effect on the direction of Shopify i.e., Shopify and Compass go up and down completely randomly.

Pair Corralation between Shopify and Compass

Given the investment horizon of 90 days Shopify is expected to under-perform the Compass. But the stock apears to be less risky and, when comparing its historical volatility, Shopify is 1.44 times less risky than Compass. The stock trades about -0.03 of its potential returns per unit of risk. The Compass is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  579.00  in Compass on December 29, 2024 and sell it today you would earn a total of  334.00  from holding Compass or generate 57.69% return on investment over 90 days.

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

Shopify  vs.  Compass

Shopify

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shopify has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unfluctuating performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Compass

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Compass are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady primary indicators, Compass reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shopify and Compass

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

The idea behind Shopify and Compass 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.