Correlation Between Netflix and Equity Income

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

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

Diversification Opportunities for Netflix and Equity Income

0.75

Correlation Coefficient

Netflix  Equity Income

Poor diversification

The 3 months correlation between Netflix and Equity is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Netflix and Equity Income Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Income Portfolio 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 Equity Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Income Portfolio has no effect on the direction of Netflix i.e., Netflix and Equity Income go up and down completely randomly.

Pair Corralation between Netflix and Equity Income

Given the investment horizon of 90 days Netflix is expected to generate 3.1 times more return on investment than Equity Income. However, Netflix is 3.1 times more volatile than Equity Income Portfolio. It trades about 0.07 of its potential returns per unit of risk. Equity Income Portfolio is currently generating about 0.03 per unit of risk. If you would invest  90,043  in Netflix on December 29, 2024 and sell it today you would earn a total of  7,629  from holding Netflix or generate 8.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Netflix  vs.  Equity Income Portfolio

Netflix

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Netflix are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Netflix may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Equity Income Portfolio

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Income Portfolio are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Equity Income 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 Equity Income

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

The idea behind Netflix and Equity Income Portfolio 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.