Correlation Between Netflix and Smallcap
Can any of the company-specific risk be diversified away by investing in both Netflix and Smallcap 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 Smallcap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Netflix and Smallcap Sp 600, you can compare the effects of market volatilities on Netflix and Smallcap 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 Smallcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Netflix and Smallcap.
Diversification Opportunities for Netflix and Smallcap
Very poor diversification
The 3 months correlation between Netflix and Smallcap is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Netflix and Smallcap Sp 600 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap Sp 600 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 Smallcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap Sp 600 has no effect on the direction of Netflix i.e., Netflix and Smallcap go up and down completely randomly.
Pair Corralation between Netflix and Smallcap
Given the investment horizon of 90 days Netflix is expected to generate 1.65 times more return on investment than Smallcap. However, Netflix is 1.65 times more volatile than Smallcap Sp 600. It trades about 0.11 of its potential returns per unit of risk. Smallcap Sp 600 is currently generating about 0.03 per unit of risk. If you would invest 31,783 in Netflix on September 4, 2024 and sell it today you would earn a total of 57,991 from holding Netflix or generate 182.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.19% |
| Values | Daily Returns |
Netflix vs. Smallcap Sp 600
Performance |
| Timeline |
| Netflix |
| Smallcap Sp 600 |
Netflix and Smallcap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Netflix and Smallcap
The main advantage of trading using opposite Netflix and Smallcap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Netflix position performs unexpectedly, Smallcap 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 Smallcap will offset losses from the drop in Smallcap's long position.| Netflix vs. Paramount Global Class | Netflix vs. Roku Inc | Netflix vs. Warner Bros Discovery | Netflix vs. AMC Entertainment Holdings |
| Smallcap vs. Strategic Asset Management | Smallcap vs. Strategic Asset Management | Smallcap vs. Strategic Asset Management | Smallcap vs. Strategic Asset Management |
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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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