Correlation Between Netflix and Buffalo Discovery

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

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

Diversification Opportunities for Netflix and Buffalo Discovery

0.8

Correlation Coefficient

Netflix  Buffalo Discovery

Very poor diversification

The 3 months correlation between Netflix and Buffalo is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Netflix and Buffalo Discovery Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Buffalo Discovery 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 Buffalo Discovery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Buffalo Discovery has no effect on the direction of Netflix i.e., Netflix and Buffalo Discovery go up and down completely randomly.

Pair Corralation between Netflix and Buffalo Discovery

Given the investment horizon of 90 days Netflix is expected to generate 2.31 times more return on investment than Buffalo Discovery. However, Netflix is 2.31 times more volatile than Buffalo Discovery Fund. It trades about 0.23 of its potential returns per unit of risk. Buffalo Discovery Fund is currently generating about 0.17 per unit of risk. If you would invest  67,532  in Netflix on September 3, 2024 and sell it today you would earn a total of  21,149  from holding Netflix or generate 31.32% return on investment over 90 days.

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

Netflix  vs.  Buffalo Discovery Fund

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.

Buffalo Discovery

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Buffalo Discovery Fund are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Buffalo Discovery may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Netflix and Buffalo Discovery

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

The idea behind Netflix and Buffalo Discovery Fund 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.