Correlation Between LVMH Moët and Netflix

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

By analyzing existing cross correlation between LVMH Mot Hennessy and Netflix, you can compare the effects of market volatilities on LVMH Moët 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 LVMH Moët with a short position of Netflix. Check out your portfolio center. Please also check ongoing floating volatility patterns of LVMH Moët and Netflix.

Diversification Opportunities for LVMH Moët and Netflix

0.76

Correlation Coefficient

LVMH Moët  Netflix

Poor diversification

The 3 months correlation between LVMH and Netflix is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding LVMH Mot Hennessy and Netflix in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Netflix and LVMH Moët 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 LVMH Mot Hennessy 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 LVMH Moët i.e., LVMH Moët and Netflix go up and down completely randomly.

Pair Corralation between LVMH Moët and Netflix

Assuming the 90 days horizon LVMH Moët is expected to generate 2.81 times less return on investment than Netflix. But when comparing it to its historical volatility, LVMH Mot Hennessy is 1.47 times less risky than Netflix. It trades about 0.05 of its potential returns per unit of risk. Netflix is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  18,832  in Netflix on January 25, 2024 and sell it today you would earn a total of  38,943  from holding Netflix or generate 206.79% return on investment over 90 days.

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

LVMH Mot Hennessy  vs.  Netflix

LVMH Mot Hennessy

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LVMH Mot Hennessy are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical indicators, LVMH Moët may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Netflix

Risk-Adjusted Performance

2 of 100

Insignificant

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.

Pair Trading with LVMH Moët and Netflix

The main advantage of trading using opposite LVMH Moët and Netflix positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LVMH Moët 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 LVMH Mot Hennessy 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.

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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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.