Correlation Between Spotify Technology and Ares Management

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

Diversification Opportunities for Spotify Technology and Ares Management

0.81
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Spotify and Ares is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Spotify Technology SA and Ares Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares Management 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 Ares Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ares Management has no effect on the direction of Spotify Technology i.e., Spotify Technology and Ares Management go up and down completely randomly.

Pair Corralation between Spotify Technology and Ares Management

Assuming the 90 days trading horizon Spotify Technology SA is expected to generate 1.42 times more return on investment than Ares Management. However, Spotify Technology is 1.42 times more volatile than Ares Management. It trades about 0.15 of its potential returns per unit of risk. Ares Management is currently generating about 0.13 per unit of risk. If you would invest  12,224  in Spotify Technology SA on October 10, 2024 and sell it today you would earn a total of  58,213  from holding Spotify Technology SA or generate 476.22% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy98.79%
ValuesDaily Returns

Spotify Technology SA  vs.  Ares Management

 Performance 
       Timeline  
Spotify Technology 

Risk-Adjusted Performance

16 of 100

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

Risk-Adjusted Performance

17 of 100

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

Spotify Technology and Ares Management Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Spotify Technology and Ares Management

The main advantage of trading using opposite Spotify Technology and Ares Management positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spotify Technology position performs unexpectedly, Ares Management 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 Ares Management will offset losses from the drop in Ares Management's long position.
The idea behind Spotify Technology SA and Ares Management 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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