Correlation Between Netflix and Lemonade
Can any of the company-specific risk be diversified away by investing in both Netflix and Lemonade 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 Lemonade into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Netflix and Lemonade, you can compare the effects of market volatilities on Netflix and Lemonade 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 Lemonade. Check out your portfolio center. Please also check ongoing floating volatility patterns of Netflix and Lemonade.
Diversification Opportunities for Netflix and Lemonade
Almost no diversification
The 3 months correlation between Netflix and Lemonade is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Netflix and Lemonade in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lemonade 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 Lemonade. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lemonade has no effect on the direction of Netflix i.e., Netflix and Lemonade go up and down completely randomly.
Pair Corralation between Netflix and Lemonade
Given the investment horizon of 90 days Netflix is expected to generate 2.15 times less return on investment than Lemonade. But when comparing it to its historical volatility, Netflix is 2.65 times less risky than Lemonade. It trades about 0.15 of its potential returns per unit of risk. Lemonade is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 1,613 in Lemonade on August 25, 2024 and sell it today you would earn a total of 3,315 from holding Lemonade or generate 205.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Netflix vs. Lemonade
Performance |
| Timeline |
| Netflix |
| Lemonade |
Netflix and Lemonade Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Netflix and Lemonade
The main advantage of trading using opposite Netflix and Lemonade positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Netflix position performs unexpectedly, Lemonade 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 Lemonade will offset losses from the drop in Lemonade's long position.| Netflix vs. Paramount Global Class | Netflix vs. Roku Inc | Netflix vs. Warner Bros Discovery | Netflix vs. AMC Entertainment Holdings |
| Lemonade vs. Fiverr International | Lemonade vs. Pinterest | Lemonade vs. Upstart Holdings | Lemonade vs. Fastly Inc |
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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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