Correlation Between Auto Trader and Spotify Technology

Can any of the company-specific risk be diversified away by investing in both Auto Trader 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 Auto Trader and Spotify Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Auto Trader Group and Spotify Technology SA, you can compare the effects of market volatilities on Auto Trader 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 Auto Trader with a short position of Spotify Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Auto Trader and Spotify Technology.

Diversification Opportunities for Auto Trader and Spotify Technology

-0.67

Correlation Coefficient

Auto Trader  Spotify Technology

Excellent diversification

The 3 months correlation between Auto and Spotify is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Auto Trader 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 Auto Trader 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 Auto Trader 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 Auto Trader i.e., Auto Trader and Spotify Technology go up and down completely randomly.

Pair Corralation between Auto Trader and Spotify Technology

Assuming the 90 days trading horizon Auto Trader is expected to generate 6.06 times less return on investment than Spotify Technology. But when comparing it to its historical volatility, Auto Trader Group is 1.76 times less risky than Spotify Technology. It trades about 0.04 of its potential returns per unit of risk. Spotify Technology SA is currently generating about 0.14 of returns per unit of risk over similar time horizon. 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 Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Auto Trader Group  vs.  Spotify Technology SA

Auto Trader Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Auto Trader Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

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.

Pair Trading with Auto Trader and Spotify Technology

The main advantage of trading using opposite Auto Trader and Spotify Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Auto Trader 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.

The idea behind Auto Trader Group and Spotify Technology SA 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.