Correlation Between Amazon and Netflix
Can any of the company-specific risk be diversified away by investing in both Amazon and Netflix 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 Amazon and Netflix into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and Netflix, you can compare the effects of market volatilities on Amazon and Netflix 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 Amazon with a short position of Netflix. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Netflix.
Diversification Opportunities for Amazon and Netflix
Very poor diversification
The 3 months correlation between Amazon and Netflix is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Netflix in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Netflix and Amazon 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 Amazon Inc are associated (or correlated) with Netflix. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Netflix has no effect on the direction of Amazon i.e., Amazon and Netflix go up and down completely randomly.
Pair Corralation between Amazon and Netflix
Assuming the 90 days horizon Amazon is expected to generate 1.92 times less return on investment than Netflix. In addition to that, Amazon is 1.26 times more volatile than Netflix. It trades about 0.23 of its total potential returns per unit of risk. Netflix is currently generating about 0.55 per unit of volatility. If you would invest 69,650 in Netflix on August 25, 2024 and sell it today you would earn a total of 14,160 from holding Netflix or generate 20.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Amazon Inc vs. Netflix
Performance |
| Timeline |
| Amazon Inc |
| Netflix |
Amazon and Netflix Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amazon and Netflix
The main advantage of trading using opposite Amazon and Netflix positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Netflix 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 Netflix will offset losses from the drop in Netflix's long position.The idea behind Amazon Inc and Netflix 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.| Netflix vs. INTERCONT HOTELS | Netflix vs. Electronic Arts | Netflix vs. Hyatt Hotels | Netflix vs. Wyndham Hotels Resorts |
Check out your portfolio center.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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
Other Complementary Tools
| Content Syndication Quickly integrate customizable finance content to your own investment portal | |
| Portfolio Backtesting Avoid under-diversification and over-optimization by backtesting your portfolios | |
| Risk-Return Analysis View associations between returns expected from investment and the risk you assume | |
| Equity Valuation Check real value of public entities based on technical and fundamental data | |
| Bond Analysis Evaluate and analyze corporate bonds as a potential investment for your portfolios. |