Correlation Between Disney and Netflix
Can any of the company-specific risk be diversified away by investing in both Disney 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 Disney and Netflix into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Walt Disney and Netflix, you can compare the effects of market volatilities on Disney 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 Disney with a short position of Netflix. Check out your portfolio center. Please also check ongoing floating volatility patterns of Disney and Netflix.
Diversification Opportunities for Disney and Netflix
Almost no diversification
The 3 months correlation between Disney and Netflix is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Netflix in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Netflix and Disney 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 Walt Disney 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 Disney i.e., Disney and Netflix go up and down completely randomly.
Pair Corralation between Disney and Netflix
Considering the 90-day investment horizon Disney is expected to generate 1.15 times less return on investment than Netflix. But when comparing it to its historical volatility, Walt Disney is 1.36 times less risky than Netflix. It trades about 0.26 of its potential returns per unit of risk. Netflix is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 68,673 in Netflix on August 23, 2024 and sell it today you would earn a total of 21,075 from holding Netflix or generate 30.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Walt Disney vs. Netflix
Performance |
| Timeline |
| Walt Disney |
| Netflix |
Disney and Netflix Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Disney and Netflix
The main advantage of trading using opposite Disney and Netflix positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Disney 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.| Disney vs. Roku Inc | Disney vs. AMC Entertainment Holdings | Disney vs. Paramount Global Class | Disney vs. Warner Bros Discovery |
| Netflix vs. Paramount Global Class | Netflix vs. Roku Inc | Netflix vs. Warner Bros Discovery | Netflix vs. AMC Entertainment Holdings |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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