Correlation Between BHP and Netflix

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

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

Diversification Opportunities for BHP and Netflix

0.11

Correlation Coefficient

BHP  Netflix

Average diversification

The 3 months correlation between BHP and Netflix is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group and Netflix in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Netflix and BHP 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 BHP Group are associated (or correlated) with Netflix. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Netflix has no effect on the direction of BHP i.e., BHP and Netflix go up and down completely randomly.

Pair Corralation between BHP and Netflix

Assuming the 90 days trading horizon BHP Group is expected to under-perform the Netflix. But the stock apears to be less risky and, when comparing its historical volatility, BHP Group is 5.4 times less risky than Netflix. The stock trades about -0.13 of its potential returns per unit of risk. The Netflix is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  1,396,500  in Netflix on September 27, 2024 and sell it today you would earn a total of  470,095  from holding Netflix or generate 33.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

BHP Group  vs.  Netflix

BHP Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BHP Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, BHP is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Netflix

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Netflix are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Netflix showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BHP and Netflix

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

The idea behind BHP Group and Netflix 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.