Correlation Between Spotify Technology and Automatic Data

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

Diversification Opportunities for Spotify Technology and Automatic Data

0.91

Correlation Coefficient

Spotify Technology  Automatic Data

Almost no diversification

The 3 months correlation between Spotify and Automatic is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Spotify Technology SA and Automatic Data Processing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automatic Data Processing 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 Automatic Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automatic Data Processing has no effect on the direction of Spotify Technology i.e., Spotify Technology and Automatic Data go up and down completely randomly.

Pair Corralation between Spotify Technology and Automatic Data

Assuming the 90 days trading horizon Spotify Technology SA is expected to generate 1.93 times more return on investment than Automatic Data. However, Spotify Technology is 1.93 times more volatile than Automatic Data Processing. It trades about 0.15 of its potential returns per unit of risk. Automatic Data Processing is currently generating about 0.18 per unit of risk. If you would invest  44,090  in Spotify Technology SA on September 29, 2024 and sell it today you would earn a total of  25,900  from holding Spotify Technology SA or generate 58.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.41%
Values	Daily Returns

Spotify Technology SA  vs.  Automatic Data Processing

Spotify Technology

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Spotify Technology SA are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Spotify Technology sustained solid returns over the last few months and may actually be approaching a breakup point.

Automatic Data Processing

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Automatic Data sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Spotify Technology and Automatic Data

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

The idea behind Spotify Technology SA and Automatic Data Processing 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.