Correlation Between Spotify Technology and Shopify

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

Diversification Opportunities for Spotify Technology and Shopify

0.98

Correlation Coefficient

Spotify Technology  Shopify

Almost no diversification

The 3 months correlation between Spotify and Shopify is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Spotify Technology SA and Shopify in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shopify 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 Shopify. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shopify has no effect on the direction of Spotify Technology i.e., Spotify Technology and Shopify go up and down completely randomly.

Pair Corralation between Spotify Technology and Shopify

Assuming the 90 days trading horizon Spotify Technology is expected to generate 1.24 times less return on investment than Shopify. But when comparing it to its historical volatility, Spotify Technology SA is 1.39 times less risky than Shopify. It trades about 0.3 of its potential returns per unit of risk. Shopify is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  338.00  in Shopify on September 14, 2024 and sell it today you would earn a total of  240.00  from holding Shopify or generate 71.01% return on investment over 90 days.

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

Spotify Technology SA  vs.  Shopify

Spotify Technology

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Spotify Technology SA are ranked lower than 23 (%) 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.

Shopify

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shopify are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, Shopify sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Spotify Technology and Shopify

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

The idea behind Spotify Technology SA and Shopify 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.