Correlation Between Shopify and Snowflake

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

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

Diversification Opportunities for Shopify and Snowflake

0.86

Correlation Coefficient

Shopify  Snowflake

Very poor diversification

The 3 months correlation between Shopify and Snowflake is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Shopify and Snowflake in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Snowflake 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 Snowflake. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Snowflake has no effect on the direction of Shopify i.e., Shopify and Snowflake go up and down completely randomly.

Pair Corralation between Shopify and Snowflake

Assuming the 90 days horizon Shopify is expected to generate 1.03 times less return on investment than Snowflake. But when comparing it to its historical volatility, Shopify is 1.29 times less risky than Snowflake. It trades about 0.23 of its potential returns per unit of risk. Snowflake is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  10,000  in Snowflake on September 3, 2024 and sell it today you would earn a total of  6,544  from holding Snowflake or generate 65.44% return on investment over 90 days.

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

Shopify  vs.  Snowflake

Shopify

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shopify are ranked lower than 18 (%) 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.

Snowflake

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Snowflake are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Snowflake reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shopify and Snowflake

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

The idea behind Shopify and Snowflake 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.