Correlation Between Liberty Media and Warner Bros

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

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

Diversification Opportunities for Liberty Media and Warner Bros

0.9

Correlation Coefficient

Liberty Media  Warner Bros

Almost no diversification

The 3 months correlation between Liberty and Warner is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Liberty Media 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 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 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 Liberty Media i.e., Liberty Media and Warner Bros go up and down completely randomly.

Pair Corralation between Liberty Media and Warner Bros

Assuming the 90 days horizon Liberty Media is expected to generate 0.51 times more return on investment than Warner Bros. However, Liberty Media is 1.97 times less risky than Warner Bros. It trades about 0.06 of its potential returns per unit of risk. Warner Bros Discovery is currently generating about 0.01 per unit of risk. If you would invest  5,477  in Liberty Media on September 29, 2024 and sell it today you would earn a total of  3,017  from holding Liberty Media or generate 55.08% return on investment over 90 days.

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

Liberty Media  vs.  Warner Bros Discovery

Liberty Media

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty Media are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Liberty Media sustained solid returns over the last few months and may actually be approaching a breakup point.

Warner Bros Discovery

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Bros Discovery are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental drivers, Warner Bros exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Liberty Media and Warner Bros

The main advantage of trading using opposite Liberty Media and Warner Bros positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Liberty Media 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 Liberty Media 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.