Correlation Between Netflix and Kumba Iron

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

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

Diversification Opportunities for Netflix and Kumba Iron

-0.26

Correlation Coefficient

Netflix  Kumba Iron

Very good diversification

The 3 months correlation between Netflix and Kumba is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Netflix and Kumba Iron Ore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kumba Iron Ore 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 Kumba Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kumba Iron Ore has no effect on the direction of Netflix i.e., Netflix and Kumba Iron go up and down completely randomly.

Pair Corralation between Netflix and Kumba Iron

Given the investment horizon of 90 days Netflix is expected to generate 0.85 times more return on investment than Kumba Iron. However, Netflix is 1.17 times less risky than Kumba Iron. It trades about 0.12 of its potential returns per unit of risk. Kumba Iron Ore is currently generating about -0.01 per unit of risk. If you would invest  29,041  in Netflix on September 5, 2024 and sell it today you would earn a total of  61,176  from holding Netflix or generate 210.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.19%
Values	Daily Returns

Netflix  vs.  Kumba Iron Ore

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.

Kumba Iron Ore

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Kumba Iron Ore are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Kumba Iron may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Netflix and Kumba Iron

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

The idea behind Netflix and Kumba Iron Ore 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.