Correlation Between SohuCom and Shopify

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

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

Diversification Opportunities for SohuCom and Shopify

-0.54

Correlation Coefficient

SohuCom  Shopify

Excellent diversification

The 3 months correlation between SohuCom and Shopify is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding SohuCom and Shopify in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shopify and SohuCom 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 SohuCom 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 SohuCom i.e., SohuCom and Shopify go up and down completely randomly.

Pair Corralation between SohuCom and Shopify

Given the investment horizon of 90 days SohuCom is expected to generate 0.75 times more return on investment than Shopify. However, SohuCom is 1.33 times less risky than Shopify. It trades about 0.24 of its potential returns per unit of risk. Shopify is currently generating about -0.2 per unit of risk. If you would invest  1,048  in SohuCom on January 26, 2024 and sell it today you would earn a total of  75.00  from holding SohuCom or generate 7.16% return on investment over 90 days.

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

SohuCom  vs.  Shopify

SohuCom

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SohuCom are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting technical indicators, SohuCom unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 unfluctuating 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 SohuCom and Shopify

The main advantage of trading using opposite SohuCom and Shopify positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SohuCom 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 SohuCom 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.