Correlation Between Shopify and Carsmartt

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

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

Diversification Opportunities for Shopify and Carsmartt

-0.48

Correlation Coefficient

Shopify  Carsmartt

Very good diversification

The 3 months correlation between Shopify and Carsmartt is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Shopify and Carsmartt in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carsmartt 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 Carsmartt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carsmartt has no effect on the direction of Shopify i.e., Shopify and Carsmartt go up and down completely randomly.

Pair Corralation between Shopify and Carsmartt

Given the investment horizon of 90 days Shopify is expected to generate 0.37 times more return on investment than Carsmartt. However, Shopify is 2.72 times less risky than Carsmartt. It trades about 0.24 of its potential returns per unit of risk. Carsmartt is currently generating about -0.04 per unit of risk. If you would invest  7,245  in Shopify on September 13, 2024 and sell it today you would earn a total of  4,492  from holding Shopify or generate 62.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Shopify  vs.  Carsmartt

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. Even with relatively unfluctuating basic indicators, Shopify reported solid returns over the last few months and may actually be approaching a breakup point.

Carsmartt

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Carsmartt 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 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 Carsmartt

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

The idea behind Shopify and Carsmartt 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.