Correlation Between Live Nation and PepsiCo

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

Diversification Opportunities for Live Nation and PepsiCo

0.33

Correlation Coefficient

Live Nation  PepsiCo

Weak diversification

The 3 months correlation between Live and PepsiCo is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Live Nation Entertainment and PepsiCo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PepsiCo 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 PepsiCo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PepsiCo has no effect on the direction of Live Nation i.e., Live Nation and PepsiCo go up and down completely randomly.

Pair Corralation between Live Nation and PepsiCo

Assuming the 90 days horizon Live Nation Entertainment is expected to under-perform the PepsiCo. In addition to that, Live Nation is 1.06 times more volatile than PepsiCo. It trades about -0.05 of its total potential returns per unit of risk. PepsiCo is currently generating about -0.03 per unit of volatility. If you would invest  14,529  in PepsiCo on December 28, 2024 and sell it today you would lose (691.00) from holding PepsiCo or give up 4.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Live Nation Entertainment  vs.  PepsiCo

Live Nation Entertainment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Live Nation Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Live Nation is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

PepsiCo

Risk-Adjusted Performance

Very Weak

Over the last 90 days PepsiCo has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, PepsiCo is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Live Nation and PepsiCo

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

The idea behind Live Nation Entertainment and PepsiCo 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.