Correlation Between Liberty Media and National CineMedia

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

By analyzing existing cross correlation between Liberty Media and National CineMedia, you can compare the effects of market volatilities on Liberty Media and National CineMedia 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 Liberty Media with a short position of National CineMedia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Liberty Media and National CineMedia.

Diversification Opportunities for Liberty Media and National CineMedia

-0.32

Correlation Coefficient

Liberty Media  National CineMedia

Very good diversification

The 24 months correlation between Liberty and National is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Liberty Media and National CineMedia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National CineMedia and Liberty Media 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 Liberty Media are associated (or correlated) with National CineMedia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National CineMedia has no effect on the direction of Liberty Media i.e., Liberty Media and National CineMedia go up and down completely randomly.

Pair Corralation between Liberty Media and National CineMedia

Assuming the 90 days horizon Liberty Media is expected to under-perform the National CineMedia. But the stock apears to be less risky and, when comparing its historical volatility, Liberty Media is 3.45 times less risky than National CineMedia. The stock trades about -0.02 of its potential returns per unit of risk. The National CineMedia is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  387.00  in National CineMedia on February 11, 2024 and sell it today you would earn a total of  63.00  from holding National CineMedia or generate 16.28% return on investment over 90 days.

Time Period	24 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Liberty Media  vs.  National CineMedia

Liberty Media

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty Media are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Liberty Media is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

National CineMedia

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days National CineMedia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong primary indicators, National CineMedia is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Liberty Media and National CineMedia

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

The idea behind Liberty Media and National CineMedia 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.