Correlation Between Automatic Data and Netflix

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

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

Diversification Opportunities for Automatic Data and Netflix

0.92

Correlation Coefficient

Automatic Data  Netflix

Almost no diversification

The 3 months correlation between Automatic and Netflix is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and Netflix in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Netflix and Automatic Data 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 Automatic Data Processing 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 Automatic Data i.e., Automatic Data and Netflix go up and down completely randomly.

Pair Corralation between Automatic Data and Netflix

Assuming the 90 days trading horizon Automatic Data is expected to generate 3.9 times less return on investment than Netflix. In addition to that, Automatic Data is 1.08 times more volatile than Netflix. It trades about 0.1 of its total potential returns per unit of risk. Netflix is currently generating about 0.42 per unit of volatility. If you would invest  10,029  in Netflix on September 25, 2024 and sell it today you would earn a total of  1,201  from holding Netflix or generate 11.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	86.36%
Values	Daily Returns

Automatic Data Processing  vs.  Netflix

Automatic Data Processing

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Automatic Data sustained solid returns over the last few months and may actually be approaching a breakup point.

Netflix

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Netflix are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Netflix sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Automatic Data and Netflix

The main advantage of trading using opposite Automatic Data and Netflix positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Automatic Data 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 Automatic Data Processing 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.