Correlation Between General Dynamics and Netflix

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

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

Diversification Opportunities for General Dynamics and Netflix

-0.34

Correlation Coefficient

General Dynamics  Netflix

Very good diversification

The 3 months correlation between General and Netflix is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding General Dynamics and Netflix in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Netflix and General Dynamics 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 General Dynamics 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 General Dynamics i.e., General Dynamics and Netflix go up and down completely randomly.

Pair Corralation between General Dynamics and Netflix

Assuming the 90 days horizon General Dynamics is expected to under-perform the Netflix. But the stock apears to be less risky and, when comparing its historical volatility, General Dynamics is 1.98 times less risky than Netflix. The stock trades about -0.14 of its potential returns per unit of risk. The Netflix is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  1,349,000  in Netflix on September 15, 2024 and sell it today you would earn a total of  504,300  from holding Netflix or generate 37.38% return on investment over 90 days.

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

General Dynamics  vs.  Netflix

General Dynamics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days General Dynamics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Netflix

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Netflix are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Netflix showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with General Dynamics and Netflix

The main advantage of trading using opposite General Dynamics and Netflix positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Dynamics 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 General Dynamics 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.