Correlation Between Netflix and China Sports

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

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

Diversification Opportunities for Netflix and China Sports

0.74

Correlation Coefficient

Netflix  China Sports

Poor diversification

The 3 months correlation between Netflix and China is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Netflix and China Sports Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Sports Industry 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 China Sports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Sports Industry has no effect on the direction of Netflix i.e., Netflix and China Sports go up and down completely randomly.

Pair Corralation between Netflix and China Sports

Given the investment horizon of 90 days Netflix is expected to generate 1.05 times less return on investment than China Sports. But when comparing it to its historical volatility, Netflix is 1.28 times less risky than China Sports. It trades about 0.24 of its potential returns per unit of risk. China Sports Industry is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  658.00  in China Sports Industry on September 12, 2024 and sell it today you would earn a total of  198.00  from holding China Sports Industry or generate 30.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	90.48%
Values	Daily Returns

Netflix  vs.  China Sports Industry

Netflix

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Netflix are ranked lower than 19 (%) 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.

China Sports Industry

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Sports Industry are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Sports sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Netflix and China Sports

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

The idea behind Netflix and China Sports Industry 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.

Check out your portfolio center.

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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.