Correlation Between Telefonica and Liberty Broadband

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

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

Diversification Opportunities for Telefonica and Liberty Broadband

0.77

Correlation Coefficient

Telefonica  Liberty Broadband

Poor diversification

The 3 months correlation between Telefonica and Liberty is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Telefonica SA ADR and Liberty Broadband Srs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liberty Broadband Srs and Telefonica 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 Telefonica SA ADR are associated (or correlated) with Liberty Broadband. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liberty Broadband Srs has no effect on the direction of Telefonica i.e., Telefonica and Liberty Broadband go up and down completely randomly.

Pair Corralation between Telefonica and Liberty Broadband

Considering the 90-day investment horizon Telefonica is expected to generate 1.01 times less return on investment than Liberty Broadband. But when comparing it to its historical volatility, Telefonica SA ADR is 1.83 times less risky than Liberty Broadband. It trades about 0.23 of its potential returns per unit of risk. Liberty Broadband Srs is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  7,424  in Liberty Broadband Srs on December 30, 2024 and sell it today you would earn a total of  1,080  from holding Liberty Broadband Srs or generate 14.55% return on investment over 90 days.

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

Telefonica SA ADR  vs.  Liberty Broadband Srs

Telefonica SA ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonica SA ADR are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Telefonica reported solid returns over the last few months and may actually be approaching a breakup point.

Liberty Broadband Srs

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty Broadband Srs are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental indicators, Liberty Broadband sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Telefonica and Liberty Broadband

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

The idea behind Telefonica SA ADR and Liberty Broadband Srs 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.