Correlation Between Spotify Technology and STM Group
Can any of the company-specific risk be diversified away by investing in both Spotify Technology and STM Group 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 Spotify Technology and STM Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Spotify Technology SA and STM Group Plc, you can compare the effects of market volatilities on Spotify Technology and STM Group 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 Spotify Technology with a short position of STM Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Spotify Technology and STM Group.
Diversification Opportunities for Spotify Technology and STM Group
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Spotify and STM is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Spotify Technology SA and STM Group Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STM Group Plc and Spotify Technology 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 Spotify Technology SA are associated (or correlated) with STM Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STM Group Plc has no effect on the direction of Spotify Technology i.e., Spotify Technology and STM Group go up and down completely randomly.
Pair Corralation between Spotify Technology and STM Group
Assuming the 90 days trading horizon Spotify Technology SA is expected to generate 2.55 times more return on investment than STM Group. However, Spotify Technology is 2.55 times more volatile than STM Group Plc. It trades about 0.17 of its potential returns per unit of risk. STM Group Plc is currently generating about 0.05 per unit of risk. If you would invest 15,842 in Spotify Technology SA on September 1, 2024 and sell it today you would earn a total of 29,303 from holding Spotify Technology SA or generate 184.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 91.64% |
| Values | Daily Returns |
Spotify Technology SA vs. STM Group Plc
Performance |
| Timeline |
| Spotify Technology |
| STM Group Plc |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Solid
Spotify Technology and STM Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Spotify Technology and STM Group
The main advantage of trading using opposite Spotify Technology and STM Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spotify Technology position performs unexpectedly, STM Group 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 STM Group will offset losses from the drop in STM Group's long position.| Spotify Technology vs. Norwegian Air Shuttle | Spotify Technology vs. Arrow Electronics | Spotify Technology vs. Air Products Chemicals | Spotify Technology vs. Mindflair Plc |
| STM Group vs. Bisichi Mining PLC | STM Group vs. GreenX Metals | STM Group vs. Wheaton Precious Metals | STM Group vs. Hochschild Mining plc |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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