Correlation Between Spotify Technology and Applied Materials

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

Diversification Opportunities for Spotify Technology and Applied Materials

-0.33

Correlation Coefficient

Spotify Technology  Applied Materials

Very good diversification

The 3 months correlation between Spotify and Applied is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Spotify Technology SA and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials 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 Applied Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Materials has no effect on the direction of Spotify Technology i.e., Spotify Technology and Applied Materials go up and down completely randomly.

Pair Corralation between Spotify Technology and Applied Materials

Assuming the 90 days trading horizon Spotify Technology SA is expected to generate 0.91 times more return on investment than Applied Materials. However, Spotify Technology SA is 1.09 times less risky than Applied Materials. It trades about 0.21 of its potential returns per unit of risk. Applied Materials is currently generating about 0.03 per unit of risk. If you would invest  35,465  in Spotify Technology SA on October 26, 2024 and sell it today you would earn a total of  12,775  from holding Spotify Technology SA or generate 36.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Spotify Technology SA  vs.  Applied Materials

Spotify Technology

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Spotify Technology SA are ranked lower than 16 (%) 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.

Applied Materials

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Materials are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Applied Materials is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Spotify Technology and Applied Materials

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

The idea behind Spotify Technology SA and Applied Materials 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 Global Correlations module to find global opportunities by holding instruments from different markets.