Correlation Between News Corp and Netflix

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

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

Diversification Opportunities for News Corp and Netflix

0.9

Correlation Coefficient

News Corp  Netflix

Almost no diversification

The 3 months correlation between News and Netflix is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding News Corp A and Netflix in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Netflix and News Corp 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 News Corp A 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 News Corp i.e., News Corp and Netflix go up and down completely randomly.

Pair Corralation between News Corp and Netflix

Given the investment horizon of 90 days News Corp is expected to generate 2.8 times less return on investment than Netflix. But when comparing it to its historical volatility, News Corp A is 1.83 times less risky than Netflix. It trades about 0.16 of its potential returns per unit of risk. Netflix is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  69,706  in Netflix on September 13, 2024 and sell it today you would earn a total of  23,950  from holding Netflix or generate 34.36% return on investment over 90 days.

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

News Corp A  vs.  Netflix

News Corp A

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in News Corp A are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, News Corp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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.

Pair Trading with News Corp and Netflix

The main advantage of trading using opposite News Corp and Netflix positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if News Corp 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 News Corp A 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.

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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 Equity Valuation module to check real value of public entities based on technical and fundamental data.