Correlation Between Netflix and FibraHotel

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

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

Diversification Opportunities for Netflix and FibraHotel

0.67

Correlation Coefficient

Netflix  FibraHotel

Poor diversification

The 3 months correlation between Netflix and FibraHotel is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Netflix and FibraHotel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FibraHotel 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 FibraHotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FibraHotel has no effect on the direction of Netflix i.e., Netflix and FibraHotel go up and down completely randomly.

Pair Corralation between Netflix and FibraHotel

Assuming the 90 days trading horizon Netflix is expected to generate 0.86 times more return on investment than FibraHotel. However, Netflix is 1.16 times less risky than FibraHotel. It trades about 0.17 of its potential returns per unit of risk. FibraHotel is currently generating about 0.02 per unit of risk. If you would invest  824,011  in Netflix on September 24, 2024 and sell it today you would earn a total of  998,489  from holding Netflix or generate 121.17% return on investment over 90 days.

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

Netflix  vs.  FibraHotel

Netflix

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Netflix are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Netflix showed solid returns over the last few months and may actually be approaching a breakup point.

FibraHotel

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FibraHotel are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, FibraHotel sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Netflix and FibraHotel

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

The idea behind Netflix and FibraHotel 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.