Correlation Between Tile Shop and Shopify

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

Diversification Opportunities for Tile Shop and Shopify

0.53
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Tile Shop and Shopify is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Tile Shop Hlds and Shopify in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shopify and Tile Shop 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 Tile Shop Hlds 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 Tile Shop i.e., Tile Shop and Shopify go up and down completely randomly.

Pair Corralation between Tile Shop and Shopify

Given the investment horizon of 90 days Tile Shop is expected to generate 3.1 times less return on investment than Shopify. But when comparing it to its historical volatility, Tile Shop Hlds is 1.41 times less risky than Shopify. It trades about 0.01 of its potential returns per unit of risk. Shopify is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  3,751  in Shopify on August 29, 2022 and sell it today you would lose (72.00)  from holding Shopify or give up 1.92% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Tile Shop Hlds  vs.  Shopify

 Performance (%) 
       Timeline  
Tile Shop Hlds 
Tile Shop Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Tile Shop Hlds are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Tile Shop may actually be approaching a critical reversion point that can send shares even higher in December 2022.

Tile Shop Price Channel

Shopify 
Shopify Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Shopify are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Shopify displayed solid returns over the last few months and may actually be approaching a breakup point.

Shopify Price Channel

Tile Shop and Shopify Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Tile Shop and Shopify

The main advantage of trading using opposite Tile Shop and Shopify positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tile Shop 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.
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The idea behind Tile Shop Hlds 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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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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.

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