Correlation Between Netflix and Weichai Power

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

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

Diversification Opportunities for Netflix and Weichai Power

-0.63

Correlation Coefficient

Netflix  Weichai Power

Excellent diversification

The 3 months correlation between Netflix and Weichai is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Netflix and Weichai Power Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Weichai Power 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 Weichai Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Weichai Power has no effect on the direction of Netflix i.e., Netflix and Weichai Power go up and down completely randomly.

Pair Corralation between Netflix and Weichai Power

Given the investment horizon of 90 days Netflix is expected to generate 1.62 times more return on investment than Weichai Power. However, Netflix is 1.62 times more volatile than Weichai Power Co. It trades about 0.24 of its potential returns per unit of risk. Weichai Power Co is currently generating about 0.38 per unit of risk. If you would invest  69,706  in Netflix on September 13, 2024 and sell it today you would earn a total of  22,849  from holding Netflix or generate 32.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	10.94%
Values	Daily Returns

Netflix  vs.  Weichai Power Co

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.

Weichai Power

Risk-Adjusted Performance

0 of 100

Strong

Over the last 90 days Weichai Power Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile fundamental indicators, Weichai Power reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Netflix and Weichai Power

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

The idea behind Netflix and Weichai Power Co 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.