Correlation Between Netflix and Data Storage

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

By analyzing existing cross correlation between Netflix and Data Storage, you can compare the effects of market volatilities on Netflix and Data Storage 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 Data Storage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Netflix and Data Storage.

Diversification Opportunities for Netflix and Data Storage

-0.17

Correlation Coefficient

Netflix  Data Storage

Good diversification

The 3 months correlation between Netflix and Data is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Netflix and Data Storage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Data Storage 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 Data Storage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Data Storage has no effect on the direction of Netflix i.e., Netflix and Data Storage go up and down completely randomly.

Pair Corralation between Netflix and Data Storage

Given the investment horizon of 90 days Netflix is expected to generate 2.33 times less return on investment than Data Storage. But when comparing it to its historical volatility, Netflix is 7.39 times less risky than Data Storage. It trades about 0.23 of its potential returns per unit of risk. Data Storage is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  46.00  in Data Storage on September 4, 2024 and sell it today you would earn a total of  3.00  from holding Data Storage or generate 6.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	92.19%
Values	Daily Returns

Netflix  vs.  Data Storage

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.

Data Storage

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Data Storage are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Data Storage showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Netflix and Data Storage

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

The idea behind Netflix and Data Storage 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.