Correlation Between Liberty International and International Digital

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

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

Diversification Opportunities for Liberty International and International Digital

0.21

Correlation Coefficient

Liberty International  International Digital

Modest diversification

The 3 months correlation between Liberty and International is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Liberty International Holding and International Digital Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Digital and Liberty International 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 International Holding are associated (or correlated) with International Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Digital has no effect on the direction of Liberty International i.e., Liberty International and International Digital go up and down completely randomly.

Pair Corralation between Liberty International and International Digital

Given the investment horizon of 90 days Liberty International is expected to generate 2.73 times less return on investment than International Digital. But when comparing it to its historical volatility, Liberty International Holding is 1.58 times less risky than International Digital. It trades about 0.08 of its potential returns per unit of risk. International Digital Holding is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  12.00  in International Digital Holding on September 16, 2024 and sell it today you would lose (2.20) from holding International Digital Holding or give up 18.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.48%
Values	Daily Returns

Liberty International Holding  vs.  International Digital Holding

Liberty International

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty International Holding are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Liberty International reported solid returns over the last few months and may actually be approaching a breakup point.

International Digital

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in International Digital Holding are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward indicators, International Digital reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Liberty International and International Digital

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

The idea behind Liberty International Holding and International Digital Holding 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.

Check out your portfolio center.

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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.