Correlation Between American Films and Netflix

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

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

Diversification Opportunities for American Films and Netflix

-0.04

Correlation Coefficient

American Films  Netflix

Good diversification

The 3 months correlation between American and Netflix is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding American Films and Netflix in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Netflix and American Films 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 American Films 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 American Films i.e., American Films and Netflix go up and down completely randomly.

Pair Corralation between American Films and Netflix

Given the investment horizon of 90 days American Films is expected to generate 12.55 times more return on investment than Netflix. However, American Films is 12.55 times more volatile than Netflix. It trades about 0.1 of its potential returns per unit of risk. Netflix is currently generating about 0.16 per unit of risk. If you would invest  10.00  in American Films on October 10, 2024 and sell it today you would earn a total of  1.00  from holding American Films or generate 10.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

American Films  vs.  Netflix

American Films

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Films are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, American Films disclosed solid returns over the last few months and may actually be approaching a breakup point.

Netflix

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Netflix are ranked lower than 12 (%) 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 American Films and Netflix

The main advantage of trading using opposite American Films and Netflix positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Films 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 American Films 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.