Correlation Between Netflix and Amazon

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

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

Diversification Opportunities for Netflix and Amazon

0.44

Correlation Coefficient

Netflix  Amazon

Very weak diversification

The 3 months correlation between Netflix and Amazon is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Netflix and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon 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 Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Netflix i.e., Netflix and Amazon go up and down completely randomly.

Pair Corralation between Netflix and Amazon

Assuming the 90 days trading horizon Netflix is expected to under-perform the Amazon. In addition to that, Netflix is 2.09 times more volatile than Amazon Inc. It trades about -0.1 of its total potential returns per unit of risk. Amazon Inc is currently generating about 0.09 per unit of volatility. If you would invest  299,190  in Amazon Inc on February 2, 2024 and sell it today you would earn a total of  7,603  from holding Amazon Inc or generate 2.54% return on investment over 90 days.

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

Netflix  vs.  Amazon Inc

Netflix

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Netflix has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Netflix is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Amazon Inc

Risk-Adjusted Performance

4 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Amazon is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Netflix and Amazon

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

The idea behind Netflix and Amazon 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.

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 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.