Correlation Between Spotify Technology and Broadcom

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

Diversification Opportunities for Spotify Technology and Broadcom

0.53

Correlation Coefficient

Spotify Technology  Broadcom

Very weak diversification

The 3 months correlation between Spotify and Broadcom is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Spotify Technology SA and Broadcom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadcom 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 Broadcom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Broadcom has no effect on the direction of Spotify Technology i.e., Spotify Technology and Broadcom go up and down completely randomly.

Pair Corralation between Spotify Technology and Broadcom

Assuming the 90 days trading horizon Spotify Technology is expected to generate 25.89 times less return on investment than Broadcom. But when comparing it to its historical volatility, Spotify Technology SA is 38.71 times less risky than Broadcom. It trades about 0.14 of its potential returns per unit of risk. Broadcom is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  383.00  in Broadcom on October 23, 2024 and sell it today you would earn a total of  1,705  from holding Broadcom or generate 445.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Spotify Technology SA  vs.  Broadcom

Spotify Technology

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Spotify Technology SA are ranked lower than 17 (%) 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.

Broadcom

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Broadcom are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Broadcom sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Spotify Technology and Broadcom

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

The idea behind Spotify Technology SA and Broadcom 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.