Correlation Between Netflix and Liberty Broadband

Can any of the company-specific risk be diversified away by investing in both Netflix and Liberty Broadband 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 Liberty Broadband into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Netflix and Liberty Broadband Srs, you can compare the effects of market volatilities on Netflix and Liberty Broadband 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 Liberty Broadband. Check out your portfolio center. Please also check ongoing floating volatility patterns of Netflix and Liberty Broadband.

Diversification Opportunities for Netflix and Liberty Broadband

-0.23

Correlation Coefficient

Netflix  Liberty Broadband

Very good diversification

The 3 months correlation between Netflix and Liberty is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Netflix and Liberty Broadband Srs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liberty Broadband Srs 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 Liberty Broadband. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liberty Broadband Srs has no effect on the direction of Netflix i.e., Netflix and Liberty Broadband go up and down completely randomly.

Pair Corralation between Netflix and Liberty Broadband

Given the investment horizon of 90 days Netflix is expected to generate 1.06 times more return on investment than Liberty Broadband. However, Netflix is 1.06 times more volatile than Liberty Broadband Srs. It trades about 0.03 of its potential returns per unit of risk. Liberty Broadband Srs is currently generating about -0.18 per unit of risk. If you would invest  56,206  in Netflix on February 5, 2024 and sell it today you would earn a total of  1,728  from holding Netflix or generate 3.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Netflix  vs.  Liberty Broadband Srs

Netflix

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Netflix are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Netflix is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Liberty Broadband Srs

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Liberty Broadband Srs has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in June 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Netflix and Liberty Broadband

The main advantage of trading using opposite Netflix and Liberty Broadband positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Netflix position performs unexpectedly, Liberty Broadband 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 Liberty Broadband will offset losses from the drop in Liberty Broadband's long position.

The idea behind Netflix and Liberty Broadband Srs 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.

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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 Transaction History module to view history of all your transactions and understand their impact on performance.