Correlation Between Spotify Technology and Aeorema Communications

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

Diversification Opportunities for Spotify Technology and Aeorema Communications

0.16

Correlation Coefficient

Spotify Technology  Aeorema Communications

Average diversification

The 3 months correlation between Spotify and Aeorema is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Spotify Technology SA and Aeorema Communications Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aeorema Communications 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 Aeorema Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aeorema Communications has no effect on the direction of Spotify Technology i.e., Spotify Technology and Aeorema Communications go up and down completely randomly.

Pair Corralation between Spotify Technology and Aeorema Communications

Assuming the 90 days trading horizon Spotify Technology SA is expected to generate 1.61 times more return on investment than Aeorema Communications. However, Spotify Technology is 1.61 times more volatile than Aeorema Communications Plc. It trades about 0.28 of its potential returns per unit of risk. Aeorema Communications Plc is currently generating about 0.05 per unit of risk. If you would invest  30,675  in Spotify Technology SA on September 15, 2024 and sell it today you would earn a total of  14,550  from holding Spotify Technology SA or generate 47.43% return on investment over 90 days.

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

Spotify Technology SA  vs.  Aeorema Communications Plc

Spotify Technology

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Spotify Technology SA are ranked lower than 22 (%) 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.

Aeorema Communications

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Aeorema Communications Plc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Aeorema Communications is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Spotify Technology and Aeorema Communications

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

The idea behind Spotify Technology SA and Aeorema Communications Plc 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.