Correlation Between Bank of America and Liberty Broadband

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

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

Diversification Opportunities for Bank of America and Liberty Broadband

0.29

Correlation Coefficient

Bank of America  Liberty Broadband

Modest diversification

The 3 months correlation between Bank and Liberty is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Liberty Broadband Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liberty Broadband Corp and Bank of America 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 Bank of America 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 Corp has no effect on the direction of Bank of America i.e., Bank of America and Liberty Broadband go up and down completely randomly.

Pair Corralation between Bank of America and Liberty Broadband

Assuming the 90 days trading horizon Bank of America is expected to generate 1.03 times less return on investment than Liberty Broadband. But when comparing it to its historical volatility, Bank of America is 1.22 times less risky than Liberty Broadband. It trades about 0.05 of its potential returns per unit of risk. Liberty Broadband Corp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,026  in Liberty Broadband Corp on September 5, 2024 and sell it today you would earn a total of  374.00  from holding Liberty Broadband Corp or generate 18.46% return on investment over 90 days.

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

Bank of America  vs.  Liberty Broadband Corp

Bank of America

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank of America has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Bank of America is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Liberty Broadband Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty Broadband Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental indicators, Liberty Broadband is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Bank of America and Liberty Broadband

The main advantage of trading using opposite Bank of America and Liberty Broadband positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America 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 Bank of America and Liberty Broadband 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.