Correlation Between Live Nation and Penske Automotive

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

Diversification Opportunities for Live Nation and Penske Automotive

0.86

Correlation Coefficient

Live Nation  Penske Automotive

Very poor diversification

The 3 months correlation between Live and Penske is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Live Nation Entertainment and Penske Automotive Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Penske Automotive 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 Penske Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Penske Automotive has no effect on the direction of Live Nation i.e., Live Nation and Penske Automotive go up and down completely randomly.

Pair Corralation between Live Nation and Penske Automotive

Assuming the 90 days horizon Live Nation Entertainment is expected to generate 1.26 times more return on investment than Penske Automotive. However, Live Nation is 1.26 times more volatile than Penske Automotive Group. It trades about -0.16 of its potential returns per unit of risk. Penske Automotive Group is currently generating about -0.59 per unit of risk. If you would invest  12,925  in Live Nation Entertainment on October 9, 2024 and sell it today you would lose (395.00) from holding Live Nation Entertainment or give up 3.06% of portfolio value over 90 days.

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

Live Nation Entertainment  vs.  Penske Automotive Group

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.

Penske Automotive

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Penske Automotive Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Penske Automotive is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Live Nation and Penske Automotive

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

The idea behind Live Nation Entertainment and Penske Automotive Group 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.