Correlation Between LendingClub and Liberty Broadband

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

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

Diversification Opportunities for LendingClub and Liberty Broadband

0.84

Correlation Coefficient

LendingClub  Liberty Broadband

Very poor diversification

The 3 months correlation between LendingClub and Liberty is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding LendingClub and Liberty Broadband in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liberty Broadband and LendingClub 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 LendingClub 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 has no effect on the direction of LendingClub i.e., LendingClub and Liberty Broadband go up and down completely randomly.

Pair Corralation between LendingClub and Liberty Broadband

Assuming the 90 days trading horizon LendingClub is expected to generate 0.94 times more return on investment than Liberty Broadband. However, LendingClub is 1.06 times less risky than Liberty Broadband. It trades about 0.25 of its potential returns per unit of risk. Liberty Broadband is currently generating about 0.21 per unit of risk. If you would invest  945.00  in LendingClub on September 12, 2024 and sell it today you would earn a total of  546.00  from holding LendingClub or generate 57.78% return on investment over 90 days.

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

LendingClub  vs.  Liberty Broadband

LendingClub

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in LendingClub are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, LendingClub reported solid returns over the last few months and may actually be approaching a breakup point.

Liberty Broadband

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty Broadband are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Liberty Broadband reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LendingClub and Liberty Broadband

The main advantage of trading using opposite LendingClub and Liberty Broadband positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LendingClub 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 LendingClub and Liberty Broadband 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.