Correlation Between Compass and Shopify

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

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

Diversification Opportunities for Compass and Shopify

0.71

Correlation Coefficient

Compass  Shopify

Poor diversification

The 3 months correlation between Compass and Shopify is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Compass and Shopify in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shopify and Compass 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 Compass 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 Compass i.e., Compass and Shopify go up and down completely randomly.

Pair Corralation between Compass and Shopify

Given the investment horizon of 90 days Compass is expected to generate 4.52 times less return on investment than Shopify. But when comparing it to its historical volatility, Compass is 1.01 times less risky than Shopify. It trades about 0.05 of its potential returns per unit of risk. Shopify is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  7,358  in Shopify on September 14, 2024 and sell it today you would earn a total of  4,173  from holding Shopify or generate 56.71% return on investment over 90 days.

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

Compass  vs.  Shopify

Compass

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Compass are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady primary indicators, Compass may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Shopify

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shopify are ranked lower than 17 (%) 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 Compass and Shopify

The main advantage of trading using opposite Compass and Shopify positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Compass 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 Compass 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.