Correlation Between Netflix and Century Small

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

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

Diversification Opportunities for Netflix and Century Small

0.86

Correlation Coefficient

Netflix  Century Small

Very poor diversification

The 3 months correlation between Netflix and Century is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Netflix and Century Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Small Cap 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 Century Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Small Cap has no effect on the direction of Netflix i.e., Netflix and Century Small go up and down completely randomly.

Pair Corralation between Netflix and Century Small

Given the investment horizon of 90 days Netflix is expected to generate 1.65 times more return on investment than Century Small. However, Netflix is 1.65 times more volatile than Century Small Cap. It trades about 0.28 of its potential returns per unit of risk. Century Small Cap is currently generating about 0.18 per unit of risk. If you would invest  67,362  in Netflix on September 10, 2024 and sell it today you would earn a total of  26,112  from holding Netflix or generate 38.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

Netflix  vs.  Century Small Cap

Netflix

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Netflix are ranked lower than 21 (%) 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.

Century Small Cap

Risk-Adjusted Performance

14 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Century Small Cap are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Century Small showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Netflix and Century Small

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

The idea behind Netflix and Century Small Cap 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.