Correlation Between United Utilities and Spotify Technology
Can any of the company-specific risk be diversified away by investing in both United Utilities and Spotify Technology 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 United Utilities and Spotify Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between United Utilities Group and Spotify Technology SA, you can compare the effects of market volatilities on United Utilities and Spotify Technology 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 United Utilities with a short position of Spotify Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Utilities and Spotify Technology.
Diversification Opportunities for United Utilities and Spotify Technology
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between United and Spotify is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding United Utilities Group and Spotify Technology SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spotify Technology and United Utilities 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 United Utilities Group are associated (or correlated) with Spotify Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spotify Technology has no effect on the direction of United Utilities i.e., United Utilities and Spotify Technology go up and down completely randomly.
Pair Corralation between United Utilities and Spotify Technology
Assuming the 90 days trading horizon United Utilities Group is expected to under-perform the Spotify Technology. But the stock apears to be less risky and, when comparing its historical volatility, United Utilities Group is 1.42 times less risky than Spotify Technology. The stock trades about -0.32 of its potential returns per unit of risk. The Spotify Technology SA is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 45,650 in Spotify Technology SA on October 11, 2024 and sell it today you would earn a total of 615.00 from holding Spotify Technology SA or generate 1.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
United Utilities Group vs. Spotify Technology SA
Performance |
| Timeline |
| United Utilities |
| Spotify Technology |
United Utilities and Spotify Technology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with United Utilities and Spotify Technology
The main advantage of trading using opposite United Utilities and Spotify Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Utilities position performs unexpectedly, Spotify Technology 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 Spotify Technology will offset losses from the drop in Spotify Technology's long position.| United Utilities vs. Deltex Medical Group | United Utilities vs. Teradata Corp | United Utilities vs. Sunny Optical Technology | United Utilities vs. Allianz Technology Trust |
| Spotify Technology vs. United Utilities Group | Spotify Technology vs. Compal Electronics GDR | Spotify Technology vs. One Media iP | Spotify Technology vs. Catalyst Media Group |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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