Correlation Between Netflix and Warner Bros

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

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

Diversification Opportunities for Netflix and Warner Bros

0.07

Correlation Coefficient

Netflix  Warner Bros

Significant diversification

The 3 months correlation between Netflix and Warner is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Netflix and Warner Bros Discovery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Warner Bros Discovery 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 Warner Bros. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Warner Bros Discovery has no effect on the direction of Netflix i.e., Netflix and Warner Bros go up and down completely randomly.

Pair Corralation between Netflix and Warner Bros

Given the investment horizon of 90 days Netflix is expected to generate 0.44 times more return on investment than Warner Bros. However, Netflix is 2.26 times less risky than Warner Bros. It trades about 0.45 of its potential returns per unit of risk. Warner Bros Discovery is currently generating about -0.11 per unit of risk. If you would invest  55,512  in Netflix on February 24, 2024 and sell it today you would earn a total of  8,055  from holding Netflix or generate 14.51% return on investment over 90 days.

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

Netflix  vs.  Warner Bros Discovery

Netflix

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Netflix are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain essential indicators, Netflix may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Warner Bros Discovery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Warner Bros Discovery has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental drivers 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 Warner Bros

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

The idea behind Netflix and Warner Bros Discovery 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..