Correlation Between Shopify and Sprout Social
Can any of the company-specific risk be diversified away by investing in both Shopify and Sprout Social 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 Sprout Social into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Shopify and Sprout Social, you can compare the effects of market volatilities on Shopify and Sprout Social 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 Sprout Social. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shopify and Sprout Social.
Diversification Opportunities for Shopify and Sprout Social
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Shopify and Sprout is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Shopify and Sprout Social in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sprout Social 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 Sprout Social. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sprout Social has no effect on the direction of Shopify i.e., Shopify and Sprout Social go up and down completely randomly.
Pair Corralation between Shopify and Sprout Social
Given the investment horizon of 90 days Shopify is expected to generate 1.17 times more return on investment than Sprout Social. However, Shopify is 1.17 times more volatile than Sprout Social. It trades about 0.39 of its potential returns per unit of risk. Sprout Social is currently generating about 0.21 per unit of risk. If you would invest 7,899 in Shopify on September 2, 2024 and sell it today you would earn a total of 3,661 from holding Shopify or generate 46.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Shopify vs. Sprout Social
Performance |
| Timeline |
| Shopify |
| Sprout Social |
Shopify and Sprout Social Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Shopify and Sprout Social
The main advantage of trading using opposite Shopify and Sprout Social positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shopify position performs unexpectedly, Sprout Social 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 Sprout Social will offset losses from the drop in Sprout Social's long position.The idea behind Shopify and Sprout Social 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.| Sprout Social vs. Progyny | Sprout Social vs. Endava | Sprout Social vs. Goosehead Insurance | Sprout Social vs. Sitime |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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