Correlation Between Vulcan Materials and Spotify Technology

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

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

Diversification Opportunities for Vulcan Materials and Spotify Technology

0.85

Correlation Coefficient

Vulcan Materials  Spotify Technology

Very poor diversification

The 3 months correlation between Vulcan and Spotify is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Vulcan Materials and Spotify Technology SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spotify Technology and Vulcan Materials 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 Vulcan Materials 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 Vulcan Materials i.e., Vulcan Materials and Spotify Technology go up and down completely randomly.

Pair Corralation between Vulcan Materials and Spotify Technology

Assuming the 90 days trading horizon Vulcan Materials is expected to under-perform the Spotify Technology. But the stock apears to be less risky and, when comparing its historical volatility, Vulcan Materials is 1.67 times less risky than Spotify Technology. The stock trades about -0.38 of its potential returns per unit of risk. The Spotify Technology SA is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  73,000  in Spotify Technology SA on October 8, 2024 and sell it today you would lose (1,666) from holding Spotify Technology SA or give up 2.28% of portfolio value over 90 days.

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

Vulcan Materials  vs.  Spotify Technology SA

Vulcan Materials

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Materials are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, Vulcan Materials sustained solid returns over the last few months and may actually be approaching a breakup point.

Spotify Technology

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Spotify Technology SA are ranked lower than 18 (%) 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 Vulcan Materials and Spotify Technology

The main advantage of trading using opposite Vulcan Materials and Spotify Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vulcan Materials 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 Vulcan Materials 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.