Correlation Between Liberty Latin and Charter Communications

Can any of the company-specific risk be diversified away by investing in both Liberty Latin and Charter Communications 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 Charter Communications 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 Charter Communications, you can compare the effects of market volatilities on Liberty Latin and Charter Communications 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 Charter Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Liberty Latin and Charter Communications.

Diversification Opportunities for Liberty Latin and Charter Communications

-0.03

Correlation Coefficient

Liberty Latin  Charter Communications

Good diversification

The 3 months correlation between Liberty and Charter is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Liberty Latin America and Charter Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charter Communications 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 Charter Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charter Communications has no effect on the direction of Liberty Latin i.e., Liberty Latin and Charter Communications go up and down completely randomly.

Pair Corralation between Liberty Latin and Charter Communications

Assuming the 90 days horizon Liberty Latin America is expected to under-perform the Charter Communications. In addition to that, Liberty Latin is 1.36 times more volatile than Charter Communications. It trades about -0.14 of its total potential returns per unit of risk. Charter Communications is currently generating about 0.08 per unit of volatility. If you would invest  32,967  in Charter Communications on October 26, 2024 and sell it today you would earn a total of  3,791  from holding Charter Communications or generate 11.5% return on investment over 90 days.

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

Liberty Latin America  vs.  Charter 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.

Charter Communications

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Charter Communications are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Charter Communications reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Liberty Latin and Charter Communications

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

The idea behind Liberty Latin America and Charter 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.