Correlation Between Wesfarmers and Shopify

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

Diversification Opportunities for Wesfarmers and Shopify

  Correlation Coefficient

Poor diversification

The 3 months correlation between Wesfarmers and Shopify is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Wesfarmers Ltd ADR and Shopify in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shopify and Wesfarmers 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 Wesfarmers Ltd ADR 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 Wesfarmers i.e., Wesfarmers and Shopify go up and down completely randomly.

Pair Corralation between Wesfarmers and Shopify

Assuming the 90 days horizon Wesfarmers is expected to generate 2.03 times less return on investment than Shopify. But when comparing it to its historical volatility, Wesfarmers Ltd ADR is 2.25 times less risky than Shopify. It trades about 0.26 of its potential returns per unit of risk. Shopify is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  3,351  in Shopify on September 3, 2022 and sell it today you would earn a total of  989.00  from holding Shopify or generate 29.51% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
ValuesDaily Returns

Wesfarmers Ltd ADR  vs.  Shopify

 Performance (%) 
Wesfarmers ADR 
Wesfarmers Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Wesfarmers Ltd ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady technical and fundamental indicators, Wesfarmers may actually be approaching a critical reversion point that can send shares even higher in January 2023.

Wesfarmers Price Channel

Shopify Performance
10 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Shopify are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Shopify displayed solid returns over the last few months and may actually be approaching a breakup point.

Shopify Price Channel

Wesfarmers and Shopify Volatility Contrast

   Predicted Return Density   

Pair Trading with Wesfarmers and Shopify

The main advantage of trading using opposite Wesfarmers and Shopify positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wesfarmers 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 Wesfarmers Ltd ADR 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.

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