Correlation Between Netflix and Palo Alto

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

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

Diversification Opportunities for Netflix and Palo Alto

0.64

Correlation Coefficient

Netflix  Palo Alto

Poor diversification

The 3 months correlation between Netflix and Palo is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Netflix and Palo Alto Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Palo Alto Networks 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 Palo Alto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Palo Alto Networks has no effect on the direction of Netflix i.e., Netflix and Palo Alto go up and down completely randomly.

Pair Corralation between Netflix and Palo Alto

Assuming the 90 days trading horizon Netflix is expected to under-perform the Palo Alto. In addition to that, Netflix is 1.12 times more volatile than Palo Alto Networks. It trades about -0.43 of its total potential returns per unit of risk. Palo Alto Networks is currently generating about -0.31 per unit of volatility. If you would invest  405,000  in Palo Alto Networks on December 10, 2024 and sell it today you would lose (48,000) from holding Palo Alto Networks or give up 11.85% of portfolio value over 90 days.

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

Netflix  vs.  Palo Alto Networks

Netflix

Risk-Adjusted Performance

Very Weak

Over the last 90 days Netflix has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Netflix is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Palo Alto Networks

Risk-Adjusted Performance

Very Weak

Over the last 90 days Palo Alto Networks has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Netflix and Palo Alto

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

The idea behind Netflix and Palo Alto Networks 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.