Correlation Between Live Nation and China Resources

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

By analyzing existing cross correlation between Live Nation Entertainment and China Resources Power, you can compare the effects of market volatilities on Live Nation and China Resources 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 Live Nation with a short position of China Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Live Nation and China Resources.

Diversification Opportunities for Live Nation and China Resources

-0.51

Correlation Coefficient

Live Nation  China Resources

Excellent diversification

The 3 months correlation between Live and China is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Live Nation Entertainment and China Resources Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Resources Power and Live Nation 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 Live Nation Entertainment are associated (or correlated) with China Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Resources Power has no effect on the direction of Live Nation i.e., Live Nation and China Resources go up and down completely randomly.

Pair Corralation between Live Nation and China Resources

Assuming the 90 days horizon Live Nation Entertainment is expected to generate 0.85 times more return on investment than China Resources. However, Live Nation Entertainment is 1.17 times less risky than China Resources. It trades about 0.19 of its potential returns per unit of risk. China Resources Power is currently generating about -0.05 per unit of risk. If you would invest  10,075  in Live Nation Entertainment on October 4, 2024 and sell it today you would earn a total of  2,480  from holding Live Nation Entertainment or generate 24.62% return on investment over 90 days.

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

Live Nation Entertainment  vs.  China Resources Power

Live Nation Entertainment

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Live Nation Entertainment are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Live Nation reported solid returns over the last few months and may actually be approaching a breakup point.

China Resources Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Resources Power has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Live Nation and China Resources

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

The idea behind Live Nation Entertainment and China Resources Power 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.