Correlation Between Madison Square and Charter Communications

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

By analyzing existing cross correlation between Madison Square Garden and Charter Communications, you can compare the effects of market volatilities on Madison Square 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 Madison Square with a short position of Charter Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Madison Square and Charter Communications.

Diversification Opportunities for Madison Square and Charter Communications

-0.47

Correlation Coefficient

Madison Square  Charter Communications

Very good diversification

The 3 months correlation between Madison and Charter is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Madison Square Garden and Charter Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charter Communications and Madison Square 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 Madison Square Garden 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 Madison Square i.e., Madison Square and Charter Communications go up and down completely randomly.

Pair Corralation between Madison Square and Charter Communications

Given the investment horizon of 90 days Madison Square Garden is expected to generate 1.01 times more return on investment than Charter Communications. However, Madison Square is 1.01 times more volatile than Charter Communications. It trades about -0.11 of its potential returns per unit of risk. Charter Communications is currently generating about -0.13 per unit of risk. If you would invest  3,915  in Madison Square Garden on October 9, 2024 and sell it today you would lose (386.00) from holding Madison Square Garden or give up 9.86% of portfolio value over 90 days.

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

Madison Square Garden  vs.  Charter Communications

Madison Square Garden

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Madison Square Garden has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Charter Communications

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Charter Communications are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Charter Communications may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Madison Square and Charter Communications

The main advantage of trading using opposite Madison Square and Charter Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Madison Square 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 Madison Square Garden 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.

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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.