Correlation Between STMicroelectronics and Spotify Technology

Can any of the company-specific risk be diversified away by investing in both STMicroelectronics and Spotify Technology 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 STMicroelectronics and Spotify Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between STMicroelectronics NV and Spotify Technology SA, you can compare the effects of market volatilities on STMicroelectronics and Spotify Technology 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 STMicroelectronics with a short position of Spotify Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMicroelectronics and Spotify Technology.

Diversification Opportunities for STMicroelectronics and Spotify Technology

-0.34

Correlation Coefficient

STMicroelectronics  Spotify Technology

Very good diversification

The 3 months correlation between STMicroelectronics and Spotify is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Spotify Technology SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spotify Technology and STMicroelectronics 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 STMicroelectronics NV are associated (or correlated) with Spotify Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spotify Technology has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Spotify Technology go up and down completely randomly.

Pair Corralation between STMicroelectronics and Spotify Technology

Assuming the 90 days trading horizon STMicroelectronics NV is expected to under-perform the Spotify Technology. But the stock apears to be less risky and, when comparing its historical volatility, STMicroelectronics NV is 1.61 times less risky than Spotify Technology. The stock trades about -0.04 of its potential returns per unit of risk. The Spotify Technology SA is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  52,800  in Spotify Technology SA on October 15, 2024 and sell it today you would earn a total of  17,857  from holding Spotify Technology SA or generate 33.82% return on investment over 90 days.

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

STMicroelectronics NV  vs.  Spotify Technology SA

STMicroelectronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMicroelectronics NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, STMicroelectronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Spotify Technology

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Spotify Technology SA are ranked lower than 16 (%) 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.

Pair Trading with STMicroelectronics and Spotify Technology

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

The idea behind STMicroelectronics NV and Spotify Technology SA 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.