Correlation Between Netflix and Darden Restaurants

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

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

Diversification Opportunities for Netflix and Darden Restaurants

0.64

Correlation Coefficient

Netflix  Darden Restaurants

Poor diversification

The 3 months correlation between Netflix and Darden is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Netflix and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants and Netflix 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 Netflix are associated (or correlated) with Darden Restaurants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Darden Restaurants has no effect on the direction of Netflix i.e., Netflix and Darden Restaurants go up and down completely randomly.

Pair Corralation between Netflix and Darden Restaurants

Given the investment horizon of 90 days Netflix is expected to generate 1.05 times more return on investment than Darden Restaurants. However, Netflix is 1.05 times more volatile than Darden Restaurants. It trades about 0.23 of its potential returns per unit of risk. Darden Restaurants is currently generating about 0.1 per unit of risk. If you would invest  67,532  in Netflix on September 3, 2024 and sell it today you would earn a total of  21,149  from holding Netflix or generate 31.32% return on investment over 90 days.

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

Netflix  vs.  Darden Restaurants

Netflix

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Netflix are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Netflix showed solid returns over the last few months and may actually be approaching a breakup point.

Darden Restaurants

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Darden Restaurants may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Netflix and Darden Restaurants

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

The idea behind Netflix and Darden Restaurants 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.