Correlation Between Netflix and T Rowe

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

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

Diversification Opportunities for Netflix and T Rowe

0.75

Correlation Coefficient

Netflix  T Rowe

Poor diversification

The 3 months correlation between Netflix and PAROX is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Netflix and T Rowe Price in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on T Rowe Price 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 T Rowe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of T Rowe Price has no effect on the direction of Netflix i.e., Netflix and T Rowe go up and down completely randomly.

Pair Corralation between Netflix and T Rowe

Given the investment horizon of 90 days Netflix is expected to generate 3.73 times more return on investment than T Rowe. However, Netflix is 3.73 times more volatile than T Rowe Price. It trades about 0.41 of its potential returns per unit of risk. T Rowe Price is currently generating about 0.14 per unit of risk. If you would invest  81,950  in Netflix on September 13, 2024 and sell it today you would earn a total of  11,706  from holding Netflix or generate 14.28% return on investment over 90 days.

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

Netflix  vs.  T Rowe Price

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 essential indicators, Netflix showed solid returns over the last few months and may actually be approaching a breakup point.

T Rowe Price

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in T Rowe Price are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, T Rowe is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Netflix and T Rowe

The main advantage of trading using opposite Netflix and T Rowe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Netflix position performs unexpectedly, T Rowe 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 T Rowe will offset losses from the drop in T Rowe's long position.

The idea behind Netflix and T Rowe Price 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.