Correlation Between Alphabet and Netflix
Can any of the company-specific risk be diversified away by investing in both Alphabet 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 Alphabet and Netflix into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alphabet Inc Class A and Netflix, you can compare the effects of market volatilities on Alphabet 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 Alphabet with a short position of Netflix. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alphabet and Netflix.
Diversification Opportunities for Alphabet and Netflix
Very poor diversification
The 3 months correlation between Alphabet and Netflix is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class A and Netflix in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Netflix and Alphabet 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 Alphabet Inc Class A 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 Alphabet i.e., Alphabet and Netflix go up and down completely randomly.
Pair Corralation between Alphabet and Netflix
Assuming the 90 days trading horizon Alphabet is expected to generate 3.18 times less return on investment than Netflix. In addition to that, Alphabet is 1.09 times more volatile than Netflix. It trades about 0.11 of its total potential returns per unit of risk. Netflix is currently generating about 0.39 per unit of volatility. If you would invest 1,503,200 in Netflix on August 28, 2024 and sell it today you would earn a total of 255,890 from holding Netflix or generate 17.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Alphabet Inc Class A vs. Netflix
Performance |
| Timeline |
| Alphabet Class A |
| Netflix |
Alphabet and Netflix Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alphabet and Netflix
The main advantage of trading using opposite Alphabet and Netflix positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet 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 Alphabet Inc Class A 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. Applied Materials | Netflix vs. Verizon Communications | Netflix vs. Hoteles City Express | Netflix vs. Cognizant Technology Solutions |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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