Correlation Between Spotify Technology and Twilio

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

Diversification Opportunities for Spotify Technology and Twilio

0.43

Correlation Coefficient

Spotify Technology  Twilio

Very weak diversification

The 3 months correlation between Spotify and Twilio is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Spotify Technology SA and Twilio Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Twilio 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 Twilio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Twilio Inc has no effect on the direction of Spotify Technology i.e., Spotify Technology and Twilio go up and down completely randomly.

Pair Corralation between Spotify Technology and Twilio

Given the investment horizon of 90 days Spotify Technology SA is expected to generate 0.8 times more return on investment than Twilio. However, Spotify Technology SA is 1.25 times less risky than Twilio. It trades about 0.12 of its potential returns per unit of risk. Twilio Inc is currently generating about -0.01 per unit of risk. If you would invest  45,179  in Spotify Technology SA on December 29, 2024 and sell it today you would earn a total of  10,937  from holding Spotify Technology SA or generate 24.21% return on investment over 90 days.

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

Spotify Technology SA  vs.  Twilio Inc

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 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Spotify Technology unveiled solid returns over the last few months and may actually be approaching a breakup point.

Twilio Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Twilio Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, Twilio is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Spotify Technology and Twilio

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

The idea behind Spotify Technology SA and Twilio 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.