Correlation Between Shopify and Vista Outdoor

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

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

Diversification Opportunities for Shopify and Vista Outdoor

0.96

Correlation Coefficient

Shopify  Vista Outdoor

Almost no diversification

The 3 months correlation between Shopify and Vista is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Shopify and Vista Outdoor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vista Outdoor 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 Vista Outdoor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vista Outdoor has no effect on the direction of Shopify i.e., Shopify and Vista Outdoor go up and down completely randomly.

Pair Corralation between Shopify and Vista Outdoor

Given the investment horizon of 90 days Shopify is expected to generate 1.29 times less return on investment than Vista Outdoor. In addition to that, Shopify is 1.88 times more volatile than Vista Outdoor. It trades about 0.05 of its total potential returns per unit of risk. Vista Outdoor is currently generating about 0.12 per unit of volatility. If you would invest  2,878  in Vista Outdoor on October 9, 2024 and sell it today you would earn a total of  1,585  from holding Vista Outdoor or generate 55.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	89.47%
Values	Daily Returns

Shopify  vs.  Vista Outdoor

Shopify

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shopify are ranked lower than 9 (%) 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.

Vista Outdoor

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Vista Outdoor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vista Outdoor 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 Vista Outdoor

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

The idea behind Shopify and Vista Outdoor 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 Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.