Correlation Between Netflix and Central Japan

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

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

Diversification Opportunities for Netflix and Central Japan

0.03

Correlation Coefficient

Netflix  Central Japan

Significant diversification

The 3 months correlation between Netflix and Central is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Netflix and Central Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Japan Railway 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 Central Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Japan Railway has no effect on the direction of Netflix i.e., Netflix and Central Japan go up and down completely randomly.

Pair Corralation between Netflix and Central Japan

Given the investment horizon of 90 days Netflix is expected to generate 1.01 times less return on investment than Central Japan. In addition to that, Netflix is 1.69 times more volatile than Central Japan Railway. It trades about 0.04 of its total potential returns per unit of risk. Central Japan Railway is currently generating about 0.06 per unit of volatility. If you would invest  934.00  in Central Japan Railway on December 30, 2024 and sell it today you would earn a total of  47.00  from holding Central Japan Railway or generate 5.03% return on investment over 90 days.

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

Netflix  vs.  Central Japan Railway

Netflix

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Netflix are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Netflix is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Central Japan Railway

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Central Japan Railway are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Central Japan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Netflix and Central Japan

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

The idea behind Netflix and Central Japan Railway 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.