Correlation Between GigaMedia and Netflix

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

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

Diversification Opportunities for GigaMedia and Netflix

0.62

Correlation Coefficient

GigaMedia  Netflix

Poor diversification

The 3 months correlation between GigaMedia and Netflix is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding GigaMedia and Netflix in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Netflix and GigaMedia 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 GigaMedia 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 GigaMedia i.e., GigaMedia and Netflix go up and down completely randomly.

Pair Corralation between GigaMedia and Netflix

Assuming the 90 days trading horizon GigaMedia is expected to generate 1.31 times less return on investment than Netflix. In addition to that, GigaMedia is 1.17 times more volatile than Netflix. It trades about 0.16 of its total potential returns per unit of risk. Netflix is currently generating about 0.24 per unit of volatility. If you would invest  70,050  in Netflix on October 25, 2024 and sell it today you would earn a total of  21,220  from holding Netflix or generate 30.29% return on investment over 90 days.

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

GigaMedia  vs.  Netflix

GigaMedia

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in GigaMedia are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, GigaMedia unveiled solid returns over the last few months and may actually be approaching a breakup point.

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. Despite nearly uncertain basic indicators, Netflix reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GigaMedia and Netflix

The main advantage of trading using opposite GigaMedia and Netflix positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GigaMedia 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 GigaMedia 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.