Correlation Between Liberty Broadband and TelstraLimited

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

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

Diversification Opportunities for Liberty Broadband and TelstraLimited

-0.26

Correlation Coefficient

Liberty Broadband  TelstraLimited

Very good diversification

The 3 months correlation between Liberty and TelstraLimited is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Liberty Broadband Srs and Telstra Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telstra Limited and Liberty Broadband 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 Broadband Srs are associated (or correlated) with TelstraLimited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telstra Limited has no effect on the direction of Liberty Broadband i.e., Liberty Broadband and TelstraLimited go up and down completely randomly.

Pair Corralation between Liberty Broadband and TelstraLimited

Assuming the 90 days horizon Liberty Broadband Srs is expected to under-perform the TelstraLimited. But the stock apears to be less risky and, when comparing its historical volatility, Liberty Broadband Srs is 2.36 times less risky than TelstraLimited. The stock trades about -0.04 of its potential returns per unit of risk. The Telstra Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  238.00  in Telstra Limited on November 28, 2024 and sell it today you would earn a total of  20.00  from holding Telstra Limited or generate 8.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

Liberty Broadband Srs  vs.  Telstra Limited

Liberty Broadband Srs

Risk-Adjusted Performance

Very Weak

Over the last 90 days Liberty Broadband Srs has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Liberty Broadband is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Telstra Limited

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Telstra Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, TelstraLimited reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Liberty Broadband and TelstraLimited

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

The idea behind Liberty Broadband Srs and Telstra Limited 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.