Correlation Between Netflix and Nike

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

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

Diversification Opportunities for Netflix and Nike

-0.35

Correlation Coefficient

Netflix  Nike

Very good diversification

The 3 months correlation between Netflix and Nike is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Netflix and Nike Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nike 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 Nike. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nike Inc has no effect on the direction of Netflix i.e., Netflix and Nike go up and down completely randomly.

Pair Corralation between Netflix and Nike

Given the investment horizon of 90 days Netflix is expected to under-perform the Nike. In addition to that, Netflix is 2.05 times more volatile than Nike Inc. It trades about -0.12 of its total potential returns per unit of risk. Nike Inc is currently generating about 0.13 per unit of volatility. If you would invest  9,000  in Nike Inc on February 7, 2024 and sell it today you would earn a total of  336.00  from holding Nike Inc or generate 3.73% return on investment over 90 days.

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

Netflix  vs.  Nike Inc

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.

Nike Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nike Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's forward-looking signals remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Netflix and Nike

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

The idea behind Netflix and Nike 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.