Correlation Between Netflix and American Airlines

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Can any of the company-specific risk be diversified away by investing in both Netflix and American Airlines 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 American Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Netflix and American Airlines Group, you can compare the effects of market volatilities on Netflix and American Airlines 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 American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Netflix and American Airlines.

Diversification Opportunities for Netflix and American Airlines

0.65
  Correlation Coefficient

Poor diversification

The 3 months correlation between Netflix and American is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Netflix and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines 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 American Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Airlines has no effect on the direction of Netflix i.e., Netflix and American Airlines go up and down completely randomly.

Pair Corralation between Netflix and American Airlines

Given the investment horizon of 90 days Netflix is expected to generate 0.9 times more return on investment than American Airlines. However, Netflix is 1.11 times less risky than American Airlines. It trades about 0.18 of its potential returns per unit of risk. American Airlines Group is currently generating about 0.07 per unit of risk. If you would invest  38,033  in Netflix on December 29, 2023 and sell it today you would earn a total of  23,320  from holding Netflix or generate 61.32% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy99.19%
ValuesDaily Returns

Netflix  vs.  American Airlines Group

 Performance 
       Timeline  
Netflix 

Risk-Adjusted Performance

15 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Netflix are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady essential indicators, Netflix showed solid returns over the last few months and may actually be approaching a breakup point.
American Airlines 

Risk-Adjusted Performance

5 of 100

 
Low
 
High
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in American Airlines Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, American Airlines disclosed solid returns over the last few months and may actually be approaching a breakup point.

Netflix and American Airlines Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Netflix and American Airlines

The main advantage of trading using opposite Netflix and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Netflix position performs unexpectedly, American Airlines 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 American Airlines will offset losses from the drop in American Airlines' long position.
The idea behind Netflix and American Airlines Group 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.
Check out your portfolio center.
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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.

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