Correlation Between Spotify Technology and Tencent Holdings

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

Diversification Opportunities for Spotify Technology and Tencent Holdings

0.68
  Correlation Coefficient

Poor diversification

The 3 months correlation between Spotify and Tencent is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Spotify Technology SA and Tencent Holdings Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tencent Holdings 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 Tencent Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tencent Holdings has no effect on the direction of Spotify Technology i.e., Spotify Technology and Tencent Holdings go up and down completely randomly.

Pair Corralation between Spotify Technology and Tencent Holdings

Given the investment horizon of 90 days Spotify Technology is expected to generate 10.41 times less return on investment than Tencent Holdings. In addition to that, Spotify Technology is 1.5 times more volatile than Tencent Holdings Ltd. It trades about 0.04 of its total potential returns per unit of risk. Tencent Holdings Ltd is currently generating about 0.55 per unit of volatility. If you would invest  3,841  in Tencent Holdings Ltd on February 17, 2024 and sell it today you would earn a total of  1,274  from holding Tencent Holdings Ltd or generate 33.17% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Spotify Technology SA  vs.  Tencent Holdings Ltd

 Performance 
       Timeline  
Spotify Technology 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Spotify Technology SA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Spotify Technology unveiled solid returns over the last few months and may actually be approaching a breakup point.
Tencent Holdings 

Risk-Adjusted Performance

22 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Holdings Ltd are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile technical indicators, Tencent Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Spotify Technology and Tencent Holdings Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Spotify Technology and Tencent Holdings

The main advantage of trading using opposite Spotify Technology and Tencent Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spotify Technology position performs unexpectedly, Tencent Holdings 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 Tencent Holdings will offset losses from the drop in Tencent Holdings' long position.
The idea behind Spotify Technology SA and Tencent Holdings Ltd 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.

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