Correlation Between Direct Digital and Liberty Media

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

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

Diversification Opportunities for Direct Digital and Liberty Media

-0.02

Correlation Coefficient

Direct Digital  Liberty Media

Good diversification

The 3 months correlation between Direct and Liberty is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Direct Digital Holdings and Liberty Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liberty Media and Direct Digital 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 Direct Digital Holdings are associated (or correlated) with Liberty Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liberty Media has no effect on the direction of Direct Digital i.e., Direct Digital and Liberty Media go up and down completely randomly.

Pair Corralation between Direct Digital and Liberty Media

Given the investment horizon of 90 days Direct Digital Holdings is expected to generate 77.02 times more return on investment than Liberty Media. However, Direct Digital is 77.02 times more volatile than Liberty Media. It trades about 0.1 of its potential returns per unit of risk. Liberty Media is currently generating about 0.08 per unit of risk. If you would invest  120.00  in Direct Digital Holdings on November 28, 2024 and sell it today you would lose (23.00) from holding Direct Digital Holdings or give up 19.17% of portfolio value over 90 days.

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

Direct Digital Holdings  vs.  Liberty Media

Direct Digital Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Direct Digital Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, Direct Digital unveiled solid returns over the last few months and may actually be approaching a breakup point.

Liberty Media

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty Media are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Liberty Media may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Direct Digital and Liberty Media

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

The idea behind Direct Digital Holdings and Liberty Media 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.