Correlation Between Spirent Communications and Live Nation

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

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

Diversification Opportunities for Spirent Communications and Live Nation

0.34

Correlation Coefficient

Spirent Communications  Live Nation

Weak diversification

The 3 months correlation between Spirent and Live is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc 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 Spirent Communications 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 Spirent Communications plc 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 Spirent Communications i.e., Spirent Communications and Live Nation go up and down completely randomly.

Pair Corralation between Spirent Communications and Live Nation

Assuming the 90 days horizon Spirent Communications is expected to generate 3.18 times less return on investment than Live Nation. In addition to that, Spirent Communications is 1.06 times more volatile than Live Nation Entertainment. It trades about 0.06 of its total potential returns per unit of risk. Live Nation Entertainment is currently generating about 0.19 per unit of volatility. If you would invest  10,705  in Live Nation Entertainment on October 25, 2024 and sell it today you would earn a total of  2,535  from holding Live Nation Entertainment or generate 23.68% return on investment over 90 days.

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

Spirent Communications plc  vs.  Live Nation Entertainment

Spirent Communications

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Spirent Communications plc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Spirent Communications may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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.

Pair Trading with Spirent Communications and Live Nation

The main advantage of trading using opposite Spirent Communications and Live Nation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spirent Communications 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 Spirent Communications plc 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.