Correlation Between Square and Shopify

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

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

Diversification Opportunities for Square and Shopify

0.94

Correlation Coefficient

Square  Shopify

Almost no diversification

The 3 months correlation between Square and Shopify is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Square Inc and Shopify in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shopify and Square 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 Square Inc are associated (or correlated) with Shopify. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shopify has no effect on the direction of Square i.e., Square and Shopify go up and down completely randomly.

Pair Corralation between Square and Shopify

Assuming the 90 days horizon Square Inc is expected to under-perform the Shopify. In addition to that, Square is 1.04 times more volatile than Shopify. It trades about -0.17 of its total potential returns per unit of risk. Shopify is currently generating about -0.09 per unit of volatility. If you would invest  10,892  in Shopify on October 14, 2024 and sell it today you would lose (446.00) from holding Shopify or give up 4.09% of portfolio value over 90 days.

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

Square Inc  vs.  Shopify

Square Inc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Square Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Square reported solid returns over the last few months and may actually be approaching a breakup point.

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. Despite nearly fragile basic indicators, Shopify reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Square and Shopify

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

The idea behind Square Inc and Shopify 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.