Correlation Between Warner Bros and Liberty Media

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

By analyzing existing cross correlation between Warner Bros Discovery and Liberty Media, you can compare the effects of market volatilities on Warner Bros and Liberty Media 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 Warner Bros with a short position of Liberty Media. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Bros and Liberty Media.

Diversification Opportunities for Warner Bros and Liberty Media

0.9

Correlation Coefficient

Warner Bros  Liberty Media

Almost no diversification

The 3 months correlation between Warner and Liberty is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Warner Bros Discovery and Liberty Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liberty Media and Warner Bros 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 Warner Bros Discovery are associated (or correlated) with Liberty Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liberty Media has no effect on the direction of Warner Bros i.e., Warner Bros and Liberty Media go up and down completely randomly.

Pair Corralation between Warner Bros and Liberty Media

Considering the 90-day investment horizon Warner Bros is expected to generate 2.97 times less return on investment than Liberty Media. In addition to that, Warner Bros is 1.97 times more volatile than Liberty Media. It trades about 0.01 of its total potential returns per unit of risk. Liberty Media is currently generating about 0.06 per unit of volatility. If you would invest  5,477  in Liberty Media on September 29, 2024 and sell it today you would earn a total of  3,017  from holding Liberty Media or generate 55.08% return on investment over 90 days.

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

Warner Bros Discovery  vs.  Liberty Media

Warner Bros Discovery

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Bros Discovery are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental drivers, Warner Bros exhibited solid returns over the last few months and may actually be approaching a breakup point.

Liberty Media

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty Media are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Liberty Media sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Warner Bros and Liberty Media

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

The idea behind Warner Bros Discovery and Liberty Media 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.