Correlation Between Netflix and Digital Development

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

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

Diversification Opportunities for Netflix and Digital Development

0.0

Correlation Coefficient

Netflix  Digital Development

Pay attention - limited upside

The 3 months correlation between Netflix and Digital is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Netflix and Digital Development Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Development 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 Digital Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Development has no effect on the direction of Netflix i.e., Netflix and Digital Development go up and down completely randomly.

Pair Corralation between Netflix and Digital Development

If you would invest  75,551  in Netflix on September 5, 2024 and sell it today you would earn a total of  14,666  from holding Netflix or generate 19.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Netflix  vs.  Digital Development Partners

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. In spite of fairly weak essential indicators, Netflix showed solid returns over the last few months and may actually be approaching a breakup point.

Digital Development

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Digital Development Partners has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, Digital Development is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Netflix and Digital Development

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

The idea behind Netflix and Digital Development Partners 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.