Correlation Between Spotify Technology and JD

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

Diversification Opportunities for Spotify Technology and JD

-0.4

Correlation Coefficient

Spotify Technology  JD

Very good diversification

The 3 months correlation between Spotify and JD is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Spotify Technology SA and JD Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JD Inc 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 JD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JD Inc has no effect on the direction of Spotify Technology i.e., Spotify Technology and JD go up and down completely randomly.

Pair Corralation between Spotify Technology and JD

Assuming the 90 days trading horizon Spotify Technology is expected to generate 1.04 times less return on investment than JD. But when comparing it to its historical volatility, Spotify Technology SA is 1.43 times less risky than JD. It trades about 0.17 of its potential returns per unit of risk. JD Inc is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,447  in JD Inc on October 21, 2024 and sell it today you would earn a total of  1,483  from holding JD Inc or generate 60.6% return on investment over 90 days.

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

Spotify Technology SA  vs.  JD Inc

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.

JD Inc

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in JD Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, JD may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Spotify Technology and JD

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

The idea behind Spotify Technology SA and JD Inc 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.