Correlation Between Netflix and Ripley Corp

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

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

Diversification Opportunities for Netflix and Ripley Corp

0.35

Correlation Coefficient

Netflix  Ripley Corp

Weak diversification

The 3 months correlation between Netflix and Ripley is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Netflix and Ripley Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ripley Corp 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 Ripley Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ripley Corp has no effect on the direction of Netflix i.e., Netflix and Ripley Corp go up and down completely randomly.

Pair Corralation between Netflix and Ripley Corp

Given the investment horizon of 90 days Netflix is expected to generate 5.55 times less return on investment than Ripley Corp. In addition to that, Netflix is 1.91 times more volatile than Ripley Corp. It trades about 0.04 of its total potential returns per unit of risk. Ripley Corp is currently generating about 0.38 per unit of volatility. If you would invest  27,190  in Ripley Corp on December 30, 2024 and sell it today you would earn a total of  9,907  from holding Ripley Corp or generate 36.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.88%
Values	Daily Returns

Netflix  vs.  Ripley Corp

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.

Ripley Corp

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Ripley Corp are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Ripley Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Netflix and Ripley Corp

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

The idea behind Netflix and Ripley Corp 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.