Correlation Between American Homes and Live Nation

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

By analyzing existing cross correlation between American Homes 4 and Live Nation Entertainment, you can compare the effects of market volatilities on American Homes and Live Nation 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 American Homes with a short position of Live Nation. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Homes and Live Nation.

Diversification Opportunities for American Homes and Live Nation

-0.48

Correlation Coefficient

American Homes  Live Nation

Very good diversification

The 3 months correlation between American and Live is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Live Nation Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Live Nation Entertainment and American Homes 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 American Homes 4 are associated (or correlated) with Live Nation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Live Nation Entertainment has no effect on the direction of American Homes i.e., American Homes and Live Nation go up and down completely randomly.

Pair Corralation between American Homes and Live Nation

Assuming the 90 days trading horizon American Homes is expected to generate 2.49 times less return on investment than Live Nation. But when comparing it to its historical volatility, American Homes 4 is 1.09 times less risky than Live Nation. It trades about 0.04 of its potential returns per unit of risk. Live Nation Entertainment is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  6,281  in Live Nation Entertainment on December 6, 2024 and sell it today you would earn a total of  7,149  from holding Live Nation Entertainment or generate 113.82% return on investment over 90 days.

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

American Homes 4  vs.  Live Nation Entertainment

American Homes 4

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Homes 4 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, American Homes is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Live Nation Entertainment

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Live Nation Entertainment are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Live Nation may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with American Homes and Live Nation

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

The idea behind American Homes 4 and Live Nation Entertainment 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..