Correlation Between Lennar and Spotify Technology

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

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

Diversification Opportunities for Lennar and Spotify Technology

-0.47

Correlation Coefficient

Lennar  Spotify Technology

Very good diversification

The 3 months correlation between Lennar and Spotify is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Lennar and Spotify Technology SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spotify Technology and Lennar 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 Lennar 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 Lennar i.e., Lennar and Spotify Technology go up and down completely randomly.

Pair Corralation between Lennar and Spotify Technology

Assuming the 90 days trading horizon Lennar is expected to under-perform the Spotify Technology. In addition to that, Lennar is 1.19 times more volatile than Spotify Technology SA. It trades about -0.43 of its total potential returns per unit of risk. Spotify Technology SA is currently generating about -0.06 per unit of volatility. If you would invest  73,000  in Spotify Technology SA on October 8, 2024 and sell it today you would lose (1,666) from holding Spotify Technology SA or give up 2.28% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Lennar  vs.  Spotify Technology SA

Lennar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lennar has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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. Despite somewhat uncertain basic indicators, Spotify Technology sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lennar and Spotify Technology

The main advantage of trading using opposite Lennar and Spotify Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lennar 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 Lennar 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.