Correlation Between 09951LAA1 and Shopify

Can any of the company-specific risk be diversified away by investing in both 09951LAA1 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 09951LAA1 and Shopify into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BOOZ ALLEN HAMILTON and Shopify, you can compare the effects of market volatilities on 09951LAA1 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 09951LAA1 with a short position of Shopify. Check out your portfolio center. Please also check ongoing floating volatility patterns of 09951LAA1 and Shopify.

Diversification Opportunities for 09951LAA1 and Shopify

-0.7

Correlation Coefficient

09951LAA1  Shopify

Excellent diversification

The 3 months correlation between 09951LAA1 and Shopify is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding BOOZ ALLEN HAMILTON and Shopify in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shopify and 09951LAA1 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 BOOZ ALLEN HAMILTON 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 09951LAA1 i.e., 09951LAA1 and Shopify go up and down completely randomly.

Pair Corralation between 09951LAA1 and Shopify

Assuming the 90 days trading horizon BOOZ ALLEN HAMILTON is expected to generate 0.43 times more return on investment than Shopify. However, BOOZ ALLEN HAMILTON is 2.33 times less risky than Shopify. It trades about 0.06 of its potential returns per unit of risk. Shopify is currently generating about -0.09 per unit of risk. If you would invest  9,599  in BOOZ ALLEN HAMILTON on October 5, 2024 and sell it today you would earn a total of  69.00  from holding BOOZ ALLEN HAMILTON or generate 0.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	60.0%
Values	Daily Returns

BOOZ ALLEN HAMILTON  vs.  Shopify

BOOZ ALLEN HAMILTON

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BOOZ ALLEN HAMILTON has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 09951LAA1 is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Shopify

Risk-Adjusted Performance

11 of 100

OK

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.

Pair Trading with 09951LAA1 and Shopify

The main advantage of trading using opposite 09951LAA1 and Shopify positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 09951LAA1 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 BOOZ ALLEN HAMILTON 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.