Correlation Between Shopify and Restaurant Brands
Can any of the company-specific risk be diversified away by investing in both Shopify and Restaurant Brands 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 Shopify and Restaurant Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Shopify and Restaurant Brands International, you can compare the effects of market volatilities on Shopify and Restaurant Brands 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 Shopify with a short position of Restaurant Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shopify and Restaurant Brands.
Diversification Opportunities for Shopify and Restaurant Brands
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Shopify and Restaurant is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Shopify and Restaurant Brands Internationa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Restaurant Brands and Shopify 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 Shopify are associated (or correlated) with Restaurant Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Restaurant Brands has no effect on the direction of Shopify i.e., Shopify and Restaurant Brands go up and down completely randomly.
Pair Corralation between Shopify and Restaurant Brands
Assuming the 90 days trading horizon Shopify is expected to generate 2.62 times more return on investment than Restaurant Brands. However, Shopify is 2.62 times more volatile than Restaurant Brands International. It trades about 0.18 of its potential returns per unit of risk. Restaurant Brands International is currently generating about 0.03 per unit of risk. If you would invest 8,139 in Shopify on September 1, 2024 and sell it today you would earn a total of 8,045 from holding Shopify or generate 98.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Shopify vs. Restaurant Brands Internationa
Performance |
| Timeline |
| Shopify |
| Restaurant Brands |
Shopify and Restaurant Brands Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Shopify and Restaurant Brands
The main advantage of trading using opposite Shopify and Restaurant Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shopify position performs unexpectedly, Restaurant Brands 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 Restaurant Brands will offset losses from the drop in Restaurant Brands' long position.The idea behind Shopify and Restaurant Brands International 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.| Restaurant Brands vs. Canadian Tire | Restaurant Brands vs. Dollarama | Restaurant Brands vs. Nutrien | Restaurant Brands vs. Magna International |
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 the Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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