Correlation Between Spotify Technology and Sovereign Metals

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

Diversification Opportunities for Spotify Technology and Sovereign Metals

0.84

Correlation Coefficient

Spotify Technology  Sovereign Metals

Very poor diversification

The 3 months correlation between Spotify and Sovereign is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Spotify Technology SA and Sovereign Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sovereign Metals 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 Sovereign Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sovereign Metals has no effect on the direction of Spotify Technology i.e., Spotify Technology and Sovereign Metals go up and down completely randomly.

Pair Corralation between Spotify Technology and Sovereign Metals

Assuming the 90 days trading horizon Spotify Technology SA is expected to generate 0.73 times more return on investment than Sovereign Metals. However, Spotify Technology SA is 1.37 times less risky than Sovereign Metals. It trades about 0.14 of its potential returns per unit of risk. Sovereign Metals is currently generating about 0.01 per unit of risk. If you would invest  43,425  in Spotify Technology SA on September 19, 2024 and sell it today you would earn a total of  2,060  from holding Spotify Technology SA or generate 4.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Spotify Technology SA  vs.  Sovereign Metals

Spotify Technology

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Spotify Technology SA are ranked lower than 19 (%) 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.

Sovereign Metals

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sovereign Metals are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Sovereign Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Spotify Technology and Sovereign Metals

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

The idea behind Spotify Technology SA and Sovereign Metals 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.

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 Global Correlations module to find global opportunities by holding instruments from different markets.