Correlation Between Snap and Spotify Technology

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

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

Diversification Opportunities for Snap and Spotify Technology

-0.23

Correlation Coefficient

Snap  Spotify Technology

Very good diversification

The 3 months correlation between Snap and Spotify is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Snap Inc and Spotify Technology SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spotify Technology and Snap 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 Snap Inc 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 Snap i.e., Snap and Spotify Technology go up and down completely randomly.

Pair Corralation between Snap and Spotify Technology

Given the investment horizon of 90 days Snap Inc is expected to generate 1.85 times more return on investment than Spotify Technology. However, Snap is 1.85 times more volatile than Spotify Technology SA. It trades about 0.3 of its potential returns per unit of risk. Spotify Technology SA is currently generating about -0.04 per unit of risk. If you would invest  1,111  in Snap Inc on February 6, 2024 and sell it today you would earn a total of  514.00  from holding Snap Inc or generate 46.26% return on investment over 90 days.

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

Snap Inc  vs.  Spotify Technology SA

Snap Inc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Snap Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Snap is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Spotify Technology

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Spotify Technology SA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Spotify Technology unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Snap and Spotify Technology

The main advantage of trading using opposite Snap and Spotify Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Snap 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 Snap Inc 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.

Check out your portfolio center.

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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.