Correlation Between Shift4 Payments and Adobe Systems

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Can any of the company-specific risk be diversified away by investing in both Shift4 Payments and Adobe Systems 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 Shift4 Payments and Adobe Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Shift4 Payments and Adobe Systems, you can compare the effects of market volatilities on Shift4 Payments and Adobe Systems 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 Shift4 Payments with a short position of Adobe Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shift4 Payments and Adobe Systems.

Diversification Opportunities for Shift4 Payments and Adobe Systems

0.81
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Shift4 and Adobe is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Shift4 Payments and Adobe Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adobe Systems and Shift4 Payments 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 Shift4 Payments are associated (or correlated) with Adobe Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adobe Systems has no effect on the direction of Shift4 Payments i.e., Shift4 Payments and Adobe Systems go up and down completely randomly.

Pair Corralation between Shift4 Payments and Adobe Systems

Given the investment horizon of 90 days Shift4 Payments is expected to generate 1.6 times more return on investment than Adobe Systems. However, Shift4 Payments is 1.6 times more volatile than Adobe Systems. It trades about 0.59 of its potential returns per unit of risk. Adobe Systems is currently generating about 0.35 per unit of risk. If you would invest  3,275  in Shift4 Payments on May 16, 2022 and sell it today you would earn a total of  1,663  from holding Shift4 Payments or generate 50.78% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy95.65%
ValuesDaily Returns

Shift4 Payments  vs.  Adobe Systems

 Performance (%) 
       Timeline  
Shift4 Payments 
Shift4 Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Shift4 Payments are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Shift4 Payments reported solid returns over the last few months and may actually be approaching a breakup point.

Shift4 Price Channel

Adobe Systems 
Adobe Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Adobe Systems are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental drivers, Adobe Systems may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Adobe Price Channel

Shift4 Payments and Adobe Systems Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Shift4 Payments and Adobe Systems

The main advantage of trading using opposite Shift4 Payments and Adobe Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shift4 Payments position performs unexpectedly, Adobe Systems 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 Adobe Systems will offset losses from the drop in Adobe Systems' long position.
The idea behind Shift4 Payments and Adobe Systems 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.

Adobe Systems

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The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Adobe Systems as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Adobe Systems' systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Adobe Systems' unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Adobe Systems.
Check out your portfolio center. 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.

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