I was very interested to see the folks at Visual Capitalist run a piece on big media stocks and how the industry has evolved.
Their main infographic illustrated the relationship between the largest media names, with an emphasis on the impact of key mergers in the works such as between Disney and 21st Century Fox.
In their bubble chart, size indicates market cap and color clarifies the main focus of the firm- content, distribution, etc.
What struck me (besides this is a great use of a bubble chart) was they missed an opportunity to use the X-Y axes for something more meaningful, such as performance, risk, or volatility.
Of course, when I see a visualization like this, I'm immediately thinking of the investment implications. And the real benefit of this type of visualization is that you can use so many different dimensions- location, color, size, etc.- to bring data to life.
One of the great advantages of data visualization is that it helps you understand the relationship between a company (fundamental) and its stock (technical). I fired up Optuma to take a stab at some additional bubble charts that would better clarify this relationship and identify potential opportunities.
Source: Optuma
In my first attempt, I looked at short-term vs. long-term performance. The X-axis measures 1-year return and the Y-axis tracks 1-month return. So a stock that is strong in the long-term as well as the short-term (such as NFLX) appears in the upper right. A stock that has been weak on both time frames (such as AMC) appears in the lower left.
I also used the size of the bubble to represent RSI, a traditional measure of price momentum. So the larger the bubble, the stronger the short-term performance.
If you're looking for stocks with strong long-term performance and weak short-term performance (the traditional "buy on the dips" approach) then look toward the lower right. In this example, Lion's Gate (LGF.A) appears to be the best fit for that type of chart.
Looking at the chart of LGF.A, we see a chart in a slow and steady uptrend, with a relatively flat 1-month return and nearing its 50-day moving average.
My second attempt was more of a risk vs. return comparison, trying to see if there was a clear relationship between the two for this particular group of names.
Source: Optuma
Here we have RSI on the X-axis (again, a measure of price momentum) and beta on the Y-axis. The size of each bubble represents the market cap.
Here we see another illustration of Netflix as an outlier relative to other names in this space. You can also see the telecom stocks (T, VZ) at the bottom (low beta) of the chart, and the smaller, higher beta names (VIA.B, DISCA) toward the top.
In this case, Dish Network Corp (DISH) stands out as a higher beta name with weaker short-term performance.
A review of the chart shows that DISH has pulled back to the lower 40s, which served as support in early 2016. We also have a bullish divergence between price and RSI, which can indicate a potential bottom.
Bubble charts can be a fantastic way of combining disparate datasets to identify outliers. In this case, incorporating some price/technical/performance data on the stocks allows for a better assessment of potential opportunities in the space.
RR#6,
Dave
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