Correlation Between Liberty Latin and American Nortel

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

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

Diversification Opportunities for Liberty Latin and American Nortel

0.67

Correlation Coefficient

Liberty Latin  American Nortel

Poor diversification

The 3 months correlation between Liberty and American is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Liberty Latin America and American Nortel Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Nortel Comm and Liberty Latin 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 Latin America are associated (or correlated) with American Nortel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Nortel Comm has no effect on the direction of Liberty Latin i.e., Liberty Latin and American Nortel go up and down completely randomly.

Pair Corralation between Liberty Latin and American Nortel

Assuming the 90 days horizon Liberty Latin America is expected to under-perform the American Nortel. But the stock apears to be less risky and, when comparing its historical volatility, Liberty Latin America is 1.61 times less risky than American Nortel. The stock trades about -0.15 of its potential returns per unit of risk. The American Nortel Communications is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2.96  in American Nortel Communications on October 6, 2024 and sell it today you would lose (0.42) from holding American Nortel Communications or give up 14.19% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.88%
Values	Daily Returns

Liberty Latin America  vs.  American Nortel Communications

Liberty Latin America

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Liberty Latin America 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 quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

American Nortel Comm

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Nortel Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, American Nortel is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Liberty Latin and American Nortel

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

The idea behind Liberty Latin America and American Nortel Communications 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.