Correlation Between Live Nation and Central Japan

Can any of the company-specific risk be diversified away by investing in both Live Nation and Central Japan 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 Central Japan 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 Central Japan Railway, you can compare the effects of market volatilities on Live Nation and Central Japan 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 Central Japan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Live Nation and Central Japan.

Diversification Opportunities for Live Nation and Central Japan

0.09

Correlation Coefficient

Live Nation  Central Japan

Significant diversification

The 3 months correlation between Live and Central is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Live Nation Entertainment and Central Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Japan Railway 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 Central Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Japan Railway has no effect on the direction of Live Nation i.e., Live Nation and Central Japan go up and down completely randomly.

Pair Corralation between Live Nation and Central Japan

Assuming the 90 days horizon Live Nation Entertainment is expected to generate 1.63 times more return on investment than Central Japan. However, Live Nation is 1.63 times more volatile than Central Japan Railway. It trades about 0.18 of its potential returns per unit of risk. Central Japan Railway is currently generating about -0.12 per unit of risk. If you would invest  10,770  in Live Nation Entertainment on October 26, 2024 and sell it today you would earn a total of  2,470  from holding Live Nation Entertainment or generate 22.93% return on investment over 90 days.

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

Live Nation Entertainment  vs.  Central Japan Railway

Live Nation Entertainment

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Live Nation Entertainment are ranked lower than 14 (%) 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.

Central Japan Railway

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Central Japan Railway has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain 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 Central Japan

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

The idea behind Live Nation Entertainment and Central Japan Railway 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.