Correlation Between Spotify Technology and MediaZest Plc

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

Diversification Opportunities for Spotify Technology and MediaZest Plc

0.28

Correlation Coefficient

Spotify Technology  MediaZest Plc

Modest diversification

The 3 months correlation between Spotify and MediaZest is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Spotify Technology SA and MediaZest plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MediaZest plc 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 MediaZest Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MediaZest plc has no effect on the direction of Spotify Technology i.e., Spotify Technology and MediaZest Plc go up and down completely randomly.

Pair Corralation between Spotify Technology and MediaZest Plc

Assuming the 90 days trading horizon Spotify Technology SA is expected to generate 0.78 times more return on investment than MediaZest Plc. However, Spotify Technology SA is 1.28 times less risky than MediaZest Plc. It trades about 0.23 of its potential returns per unit of risk. MediaZest plc is currently generating about 0.03 per unit of risk. If you would invest  34,835  in Spotify Technology SA on October 25, 2024 and sell it today you would earn a total of  13,380  from holding Spotify Technology SA or generate 38.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Spotify Technology SA  vs.  MediaZest plc

Spotify Technology

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Spotify Technology SA are ranked lower than 18 (%) 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.

MediaZest plc

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MediaZest plc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting technical and fundamental indicators, MediaZest Plc may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Spotify Technology and MediaZest Plc

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

The idea behind Spotify Technology SA and MediaZest 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.

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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.