Correlation Between TechnipFMC Plc and Spotify Technology

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

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

Diversification Opportunities for TechnipFMC Plc and Spotify Technology

0.97

Correlation Coefficient

TechnipFMC Plc  Spotify Technology

Almost no diversification

The 3 months correlation between TechnipFMC and Spotify is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding TechnipFMC plc and Spotify Technology SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spotify Technology and TechnipFMC Plc 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 TechnipFMC plc 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 TechnipFMC Plc i.e., TechnipFMC Plc and Spotify Technology go up and down completely randomly.

Pair Corralation between TechnipFMC Plc and Spotify Technology

Assuming the 90 days trading horizon TechnipFMC Plc is expected to generate 1.24 times less return on investment than Spotify Technology. But when comparing it to its historical volatility, TechnipFMC plc is 1.55 times less risky than Spotify Technology. It trades about 0.27 of its potential returns per unit of risk. Spotify Technology SA is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  52,273  in Spotify Technology SA on October 9, 2024 and sell it today you would earn a total of  18,164  from holding Spotify Technology SA or generate 34.75% return on investment over 90 days.

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

TechnipFMC plc  vs.  Spotify Technology SA

TechnipFMC plc

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TechnipFMC plc are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, TechnipFMC Plc sustained solid returns over the last few months and may actually be approaching a breakup point.

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 TechnipFMC Plc and Spotify Technology

The main advantage of trading using opposite TechnipFMC Plc and Spotify Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TechnipFMC Plc 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 TechnipFMC plc 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.