Correlation Between Home Depot and Netflix
Can any of the company-specific risk be diversified away by investing in both Home Depot 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 Home Depot and Netflix into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Home Depot and Netflix, you can compare the effects of market volatilities on Home Depot 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 Home Depot with a short position of Netflix. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Netflix.
Diversification Opportunities for Home Depot and Netflix
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Home and Netflix is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding The Home Depot and Netflix in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Netflix and Home Depot 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 The Home Depot 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 Home Depot i.e., Home Depot and Netflix go up and down completely randomly.
Pair Corralation between Home Depot and Netflix
Assuming the 90 days horizon Home Depot is expected to generate 1.15 times less return on investment than Netflix. But when comparing it to its historical volatility, The Home Depot is 1.35 times less risky than Netflix. It trades about 0.23 of its potential returns per unit of risk. Netflix is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 1,140,056 in Netflix on September 3, 2024 and sell it today you would earn a total of 691,744 from holding Netflix or generate 60.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Home Depot vs. Netflix
Performance |
| Timeline |
| Home Depot |
| Netflix |
Home Depot and Netflix Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and Netflix
The main advantage of trading using opposite Home Depot and Netflix positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot 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.| Home Depot vs. The Select Sector | Home Depot vs. Promotora y Operadora | Home Depot vs. iShares Global Timber | Home Depot vs. SPDR Series Trust |
| Netflix vs. CVS Health | Netflix vs. Costco Wholesale | Netflix vs. Cognizant Technology Solutions | Netflix vs. GMxico Transportes SAB |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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