Correlation Between Select Sector and Netflix
Can any of the company-specific risk be diversified away by investing in both Select Sector 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 Select Sector and Netflix into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Select Sector and Netflix, you can compare the effects of market volatilities on Select Sector 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 Select Sector with a short position of Netflix. Check out your portfolio center. Please also check ongoing floating volatility patterns of Select Sector and Netflix.
Diversification Opportunities for Select Sector and Netflix
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Select and Netflix is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding The Select Sector and Netflix in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Netflix and Select Sector 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 Select Sector 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 Select Sector i.e., Select Sector and Netflix go up and down completely randomly.
Pair Corralation between Select Sector and Netflix
Assuming the 90 days trading horizon Select Sector is expected to generate 3.58 times less return on investment than Netflix. But when comparing it to its historical volatility, The Select Sector is 1.26 times less risky than Netflix. It trades about 0.04 of its potential returns per unit of risk. Netflix is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 605,953 in Netflix on August 28, 2024 and sell it today you would earn a total of 1,153,137 from holding Netflix or generate 190.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Select Sector vs. Netflix
Performance |
| Timeline |
| Select Sector |
| Netflix |
Select Sector and Netflix Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Select Sector and Netflix
The main advantage of trading using opposite Select Sector and Netflix positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Select Sector 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 The Select Sector 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. First Majestic Silver | Netflix vs. Monster Beverage Corp | Netflix vs. McEwen Mining | Netflix vs. Micron Technology |
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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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