Correlation Between Netflix and SJM Holdings

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

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

Diversification Opportunities for Netflix and SJM Holdings

-0.42

Correlation Coefficient

Netflix  SJM Holdings

Very good diversification

The 3 months correlation between Netflix and SJM is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Netflix and SJM Holdings Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SJM Holdings 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 SJM Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SJM Holdings has no effect on the direction of Netflix i.e., Netflix and SJM Holdings go up and down completely randomly.

Pair Corralation between Netflix and SJM Holdings

Given the investment horizon of 90 days Netflix is expected to generate 0.28 times more return on investment than SJM Holdings. However, Netflix is 3.55 times less risky than SJM Holdings. It trades about 0.24 of its potential returns per unit of risk. SJM Holdings Ltd is currently generating about 0.06 per unit of risk. If you would invest  69,650  in Netflix on September 14, 2024 and sell it today you would earn a total of  22,905  from holding Netflix or generate 32.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Netflix  vs.  SJM Holdings Ltd

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.

SJM Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SJM Holdings Ltd are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical indicators, SJM Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Netflix and SJM Holdings

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

The idea behind Netflix and SJM Holdings Ltd 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.