Correlation Between Netflix and Nestle SA

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

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

Diversification Opportunities for Netflix and Nestle SA

-0.53

Correlation Coefficient

Netflix  Nestle SA

Excellent diversification

The 3 months correlation between Netflix and Nestle is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Netflix and Nestle SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestle SA 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 Nestle SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestle SA has no effect on the direction of Netflix i.e., Netflix and Nestle SA go up and down completely randomly.

Pair Corralation between Netflix and Nestle SA

Given the investment horizon of 90 days Netflix is expected to generate 2.03 times more return on investment than Nestle SA. However, Netflix is 2.03 times more volatile than Nestle SA. It trades about 0.13 of its potential returns per unit of risk. Nestle SA is currently generating about -0.03 per unit of risk. If you would invest  38,595  in Netflix on February 6, 2024 and sell it today you would earn a total of  19,339  from holding Netflix or generate 50.11% return on investment over 90 days.

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

Netflix  vs.  Nestle SA

Netflix

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Netflix are ranked lower than 3 (%) 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.

Nestle SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nestle SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Netflix and Nestle SA

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

The idea behind Netflix and Nestle SA 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.