Correlation Between Spotify Technology and Home Depot
Can any of the company-specific risk be diversified away by investing in both Spotify Technology and Home Depot 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 Home Depot 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 The Home Depot, you can compare the effects of market volatilities on Spotify Technology and Home Depot 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 Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Spotify Technology and Home Depot.
Diversification Opportunities for Spotify Technology and Home Depot
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Spotify and Home is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Spotify Technology SA and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot 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 Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of Spotify Technology i.e., Spotify Technology and Home Depot go up and down completely randomly.
Pair Corralation between Spotify Technology and Home Depot
Assuming the 90 days trading horizon Spotify Technology SA is expected to generate 1.71 times more return on investment than Home Depot. However, Spotify Technology is 1.71 times more volatile than The Home Depot. It trades about 0.14 of its potential returns per unit of risk. The Home Depot is currently generating about 0.07 per unit of risk. If you would invest 15,674 in Spotify Technology SA on August 27, 2024 and sell it today you would earn a total of 53,277 from holding Spotify Technology SA or generate 339.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.78% |
| Values | Daily Returns |
Spotify Technology SA vs. The Home Depot
Performance |
| Timeline |
| Spotify Technology |
| Home Depot |
Spotify Technology and Home Depot Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Spotify Technology and Home Depot
The main advantage of trading using opposite Spotify Technology and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spotify Technology position performs unexpectedly, Home Depot 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 Home Depot will offset losses from the drop in Home Depot's long position.The idea behind Spotify Technology SA and The Home Depot 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.| Home Depot vs. Unity Software | Home Depot vs. TAL Education Group | Home Depot vs. Micron Technology | Home Depot vs. Cognizant Technology Solutions |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
Other Complementary Tools
| Bollinger Bands Use Bollinger Bands indicator to analyze target price for a given investing horizon | |
| Efficient Frontier Plot and analyze your portfolio and positions against risk-return landscape of the market. | |
| Pattern Recognition Use different Pattern Recognition models to time the market across multiple global exchanges | |
| Insider Screener Find insiders across different sectors to evaluate their impact on performance | |
| Portfolio Suggestion Get suggestions outside of your existing asset allocation including your own model portfolios |