Correlation Between Spotify Technology and STMicroelectronics

Can any of the company-specific risk be diversified away by investing in both Spotify Technology and STMicroelectronics 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 STMicroelectronics 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 STMicroelectronics NV, you can compare the effects of market volatilities on Spotify Technology and STMicroelectronics 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 STMicroelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Spotify Technology and STMicroelectronics.

Diversification Opportunities for Spotify Technology and STMicroelectronics

-0.65

Correlation Coefficient

Spotify Technology  STMicroelectronics

Excellent diversification

The 3 months correlation between Spotify and STMicroelectronics is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Spotify Technology SA and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics 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 STMicroelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STMicroelectronics has no effect on the direction of Spotify Technology i.e., Spotify Technology and STMicroelectronics go up and down completely randomly.

Pair Corralation between Spotify Technology and STMicroelectronics

Assuming the 90 days trading horizon Spotify Technology SA is expected to generate 1.18 times more return on investment than STMicroelectronics. However, Spotify Technology is 1.18 times more volatile than STMicroelectronics NV. It trades about 0.15 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.02 per unit of risk. If you would invest  8,484  in Spotify Technology SA on September 26, 2024 and sell it today you would earn a total of  35,111  from holding Spotify Technology SA or generate 413.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.41%
Values	Daily Returns

Spotify Technology SA  vs.  STMicroelectronics NV

Spotify Technology

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Spotify Technology SA are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Spotify Technology unveiled solid returns over the last few months and may actually be approaching a breakup point.

STMicroelectronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMicroelectronics NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, STMicroelectronics is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Spotify Technology and STMicroelectronics

The main advantage of trading using opposite Spotify Technology and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spotify Technology position performs unexpectedly, STMicroelectronics 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 STMicroelectronics will offset losses from the drop in STMicroelectronics' long position.

The idea behind Spotify Technology SA and STMicroelectronics NV 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.

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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.