Correlation Between Spotify Technology and Transocean

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

Diversification Opportunities for Spotify Technology and Transocean

-0.5

Correlation Coefficient

Spotify Technology  Transocean

Very good diversification

The 3 months correlation between Spotify and Transocean is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Spotify Technology SA and Transocean in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transocean 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 Transocean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transocean has no effect on the direction of Spotify Technology i.e., Spotify Technology and Transocean go up and down completely randomly.

Pair Corralation between Spotify Technology and Transocean

Assuming the 90 days trading horizon Spotify Technology SA is expected to generate 0.75 times more return on investment than Transocean. However, Spotify Technology SA is 1.34 times less risky than Transocean. It trades about 0.13 of its potential returns per unit of risk. Transocean is currently generating about -0.06 per unit of risk. If you would invest  70,000  in Spotify Technology SA on December 26, 2024 and sell it today you would earn a total of  17,732  from holding Spotify Technology SA or generate 25.33% 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.  Transocean

Spotify Technology

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Spotify Technology SA are ranked lower than 10 (%) 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.

Transocean

Risk-Adjusted Performance

Very Weak

Over the last 90 days Transocean 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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Spotify Technology and Transocean

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

The idea behind Spotify Technology SA and Transocean 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.