Correlation Between Liberty Media and CECO Environmental

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

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

Diversification Opportunities for Liberty Media and CECO Environmental

0.5

Correlation Coefficient

Liberty Media  CECO Environmental

Very weak diversification

The 3 months correlation between Liberty and CECO is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Liberty Media and CECO Environmental Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CECO Environmental Corp 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 CECO Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CECO Environmental Corp has no effect on the direction of Liberty Media i.e., Liberty Media and CECO Environmental go up and down completely randomly.

Pair Corralation between Liberty Media and CECO Environmental

Assuming the 90 days horizon Liberty Media is expected to generate 0.66 times more return on investment than CECO Environmental. However, Liberty Media is 1.52 times less risky than CECO Environmental. It trades about 0.42 of its potential returns per unit of risk. CECO Environmental Corp is currently generating about 0.12 per unit of risk. If you would invest  4,017  in Liberty Media on September 13, 2024 and sell it today you would earn a total of  2,983  from holding Liberty Media or generate 74.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Liberty Media  vs.  CECO Environmental Corp

Liberty Media

Risk-Adjusted Performance

32 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty Media are ranked lower than 32 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Liberty Media sustained solid returns over the last few months and may actually be approaching a breakup point.

CECO Environmental Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CECO Environmental Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, CECO Environmental displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Liberty Media and CECO Environmental

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

The idea behind Liberty Media and CECO Environmental Corp 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.