Correlation Between Netflix and Balanced Strategy

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

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

Diversification Opportunities for Netflix and Balanced Strategy

0.86

Correlation Coefficient

Netflix  Balanced Strategy

Very poor diversification

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

Pair Corralation between Netflix and Balanced Strategy

Given the investment horizon of 90 days Netflix is expected to generate 4.39 times more return on investment than Balanced Strategy. However, Netflix is 4.39 times more volatile than Balanced Strategy Fund. It trades about 0.04 of its potential returns per unit of risk. Balanced Strategy Fund is currently generating about 0.02 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  3,342  from holding Netflix or generate 3.71% return on investment over 90 days.

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

Netflix  vs.  Balanced Strategy Fund

Netflix

Risk-Adjusted Performance

Modest

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.

Balanced Strategy

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Balanced Strategy Fund are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Balanced Strategy 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 Balanced Strategy

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

The idea behind Netflix and Balanced Strategy 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.