Correlation Between Liberty Media and Software Acquisition

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

By analyzing existing cross correlation between Liberty Media and Software Acquisition Group, you can compare the effects of market volatilities on Liberty Media and Software Acquisition 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 Software Acquisition. Check out your portfolio center. Please also check ongoing floating volatility patterns of Liberty Media and Software Acquisition.

Diversification Opportunities for Liberty Media and Software Acquisition

-0.68

Correlation Coefficient

Liberty Media  Software Acquisition

Excellent diversification

The 3 months correlation between Liberty and Software is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Liberty Media and Software Acquisition Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Software Acquisition 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 Software Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Software Acquisition has no effect on the direction of Liberty Media i.e., Liberty Media and Software Acquisition go up and down completely randomly.

Pair Corralation between Liberty Media and Software Acquisition

Assuming the 90 days horizon Liberty Media is expected to generate 0.63 times more return on investment than Software Acquisition. However, Liberty Media is 1.58 times less risky than Software Acquisition. It trades about 0.19 of its potential returns per unit of risk. Software Acquisition Group is currently generating about -0.13 per unit of risk. If you would invest  7,759  in Liberty Media on September 14, 2024 and sell it today you would earn a total of  1,717  from holding Liberty Media or generate 22.13% return on investment over 90 days.

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

Liberty Media  vs.  Software Acquisition Group

Liberty Media

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty Media are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Liberty Media disclosed solid returns over the last few months and may actually be approaching a breakup point.

Software Acquisition

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Software Acquisition Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Liberty Media and Software Acquisition

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

The idea behind Liberty Media and Software Acquisition Group 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.