Correlation Between Meridianlink and Shopify

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

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

Diversification Opportunities for Meridianlink and Shopify

0.55

Correlation Coefficient

Meridianlink  Shopify

Very weak diversification

The 3 months correlation between Meridianlink and Shopify is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Meridianlink and Shopify in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shopify and Meridianlink 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 Meridianlink 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 Meridianlink i.e., Meridianlink and Shopify go up and down completely randomly.

Pair Corralation between Meridianlink and Shopify

Given the investment horizon of 90 days Meridianlink is expected to generate 4.91 times less return on investment than Shopify. But when comparing it to its historical volatility, Meridianlink is 1.66 times less risky than Shopify. It trades about 0.02 of its potential returns per unit of risk. Shopify is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,599  in Shopify on February 4, 2024 and sell it today you would earn a total of  3,847  from holding Shopify or generate 106.89% return on investment over 90 days.

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

Meridianlink  vs.  Shopify

Meridianlink

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Meridianlink has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in June 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Shopify

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shopify has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unsteady performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Meridianlink and Shopify

The main advantage of trading using opposite Meridianlink and Shopify positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Meridianlink 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 Meridianlink 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.