Correlation Between Netflix and NetApp

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

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

Diversification Opportunities for Netflix and NetApp

0.25

Correlation Coefficient

Netflix  NetApp

Modest diversification

The 3 months correlation between Netflix and NetApp is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Netflix and NetApp Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetApp Inc 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 NetApp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NetApp Inc has no effect on the direction of Netflix i.e., Netflix and NetApp go up and down completely randomly.

Pair Corralation between Netflix and NetApp

Given the investment horizon of 90 days Netflix is expected to generate 0.66 times more return on investment than NetApp. However, Netflix is 1.53 times less risky than NetApp. It trades about 0.59 of its potential returns per unit of risk. NetApp Inc is currently generating about 0.17 per unit of risk. If you would invest  75,551  in Netflix on September 5, 2024 and sell it today you would earn a total of  14,666  from holding Netflix or generate 19.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Netflix  vs.  NetApp Inc

Netflix

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Netflix are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Netflix showed solid returns over the last few months and may actually be approaching a breakup point.

NetApp Inc

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NetApp Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, NetApp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Netflix and NetApp

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

The idea behind Netflix and NetApp Inc 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.