Correlation Between Netflix and Walt Disney

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

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

Diversification Opportunities for Netflix and Walt Disney

0.6

Correlation Coefficient

Netflix  Walt Disney

Poor diversification

The 3 months correlation between Netflix and Walt is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Netflix and The Walt Disney in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walt Disney 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 Walt Disney. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walt Disney has no effect on the direction of Netflix i.e., Netflix and Walt Disney go up and down completely randomly.

Pair Corralation between Netflix and Walt Disney

Assuming the 90 days trading horizon Netflix is expected to generate 1.92 times more return on investment than Walt Disney. However, Netflix is 1.92 times more volatile than The Walt Disney. It trades about -0.12 of its potential returns per unit of risk. The Walt Disney is currently generating about -0.23 per unit of risk. If you would invest  6,230  in Netflix on February 2, 2024 and sell it today you would lose (507.00) from holding Netflix or give up 8.14% of portfolio value over 90 days.

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

Netflix  vs.  The Walt Disney

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. Despite somewhat strong basic indicators, Netflix is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Walt Disney

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Walt Disney are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Walt Disney sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Netflix and Walt Disney

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

The idea behind Netflix and The Walt Disney 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..