Correlation Between Liberty Media and Hanover House

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

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

Diversification Opportunities for Liberty Media and Hanover House

0.9

Correlation Coefficient

Liberty Media  Hanover House

Almost no diversification

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

Pair Corralation between Liberty Media and Hanover House

Assuming the 90 days horizon Liberty Media is expected to generate 4.66 times less return on investment than Hanover House. But when comparing it to its historical volatility, Liberty Media is 6.86 times less risky than Hanover House. It trades about 0.29 of its potential returns per unit of risk. Hanover House is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  0.68  in Hanover House on September 21, 2024 and sell it today you would earn a total of  0.32  from holding Hanover House or generate 47.06% return on investment over 90 days.

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

Liberty Media  vs.  Hanover House

Liberty Media

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty Media are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Liberty Media disclosed solid returns over the last few months and may actually be approaching a breakup point.

Hanover House

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hanover House are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Hanover House exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Liberty Media and Hanover House

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

The idea behind Liberty Media and Hanover House 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.