Correlation Between Netflix and Microsoft
Can any of the company-specific risk be diversified away by investing in both Netflix and Microsoft 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 Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Netflix and Microsoft, you can compare the effects of market volatilities on Netflix and Microsoft 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 Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Netflix and Microsoft.
Diversification Opportunities for Netflix and Microsoft
Poor diversification
The 3 months correlation between Netflix and Microsoft is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Netflix and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Netflix i.e., Netflix and Microsoft go up and down completely randomly.
Pair Corralation between Netflix and Microsoft
Assuming the 90 days trading horizon Netflix is expected to generate 0.9 times more return on investment than Microsoft. However, Netflix is 1.11 times less risky than Microsoft. It trades about 0.39 of its potential returns per unit of risk. Microsoft is currently generating about 0.1 per unit of risk. 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 | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Netflix vs. Microsoft
Performance |
| Timeline |
| Netflix |
| Microsoft |
Netflix and Microsoft Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Netflix and Microsoft
The main advantage of trading using opposite Netflix and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Netflix position performs unexpectedly, Microsoft 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 Microsoft will offset losses from the drop in Microsoft's long position.| 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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