Correlation Between Liberty Broadband and InterDigital

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

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

Diversification Opportunities for Liberty Broadband and InterDigital

0.19

Correlation Coefficient

Liberty Broadband  InterDigital

Average diversification

The 3 months correlation between Liberty and InterDigital is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Liberty Broadband Corp and InterDigital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on InterDigital and Liberty Broadband 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 Broadband Corp are associated (or correlated) with InterDigital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of InterDigital has no effect on the direction of Liberty Broadband i.e., Liberty Broadband and InterDigital go up and down completely randomly.

Pair Corralation between Liberty Broadband and InterDigital

Assuming the 90 days horizon Liberty Broadband is expected to generate 12.32 times less return on investment than InterDigital. But when comparing it to its historical volatility, Liberty Broadband Corp is 2.93 times less risky than InterDigital. It trades about 0.08 of its potential returns per unit of risk. InterDigital is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  13,488  in InterDigital on September 3, 2024 and sell it today you would earn a total of  6,108  from holding InterDigital or generate 45.28% return on investment over 90 days.

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

Liberty Broadband Corp  vs.  InterDigital

Liberty Broadband Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty Broadband Corp are ranked lower than 5 (%) 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 current stock price agitation, may contribute to short-term losses for the retail investors.

InterDigital

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in InterDigital are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, InterDigital exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Liberty Broadband and InterDigital

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

The idea behind Liberty Broadband Corp and InterDigital 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.