Correlation Between Live Nation and Aluminum Futures

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

Diversification Opportunities for Live Nation and Aluminum Futures

0.69

Correlation Coefficient

Live Nation  Aluminum Futures

Poor diversification

The 3 months correlation between Live and Aluminum is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Live Nation Entertainment and Aluminum Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aluminum Futures 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 Aluminum Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aluminum Futures has no effect on the direction of Live Nation i.e., Live Nation and Aluminum Futures go up and down completely randomly.

Pair Corralation between Live Nation and Aluminum Futures

Considering the 90-day investment horizon Live Nation Entertainment is expected to generate 1.03 times more return on investment than Aluminum Futures. However, Live Nation is 1.03 times more volatile than Aluminum Futures. It trades about 0.39 of its potential returns per unit of risk. Aluminum Futures is currently generating about 0.02 per unit of risk. If you would invest  11,715  in Live Nation Entertainment on September 2, 2024 and sell it today you would earn a total of  2,110  from holding Live Nation Entertainment or generate 18.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Live Nation Entertainment  vs.  Aluminum Futures

Live Nation Entertainment

Risk-Adjusted Performance

31 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Live Nation Entertainment are ranked lower than 31 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Live Nation showed solid returns over the last few months and may actually be approaching a breakup point.

Aluminum Futures

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aluminum Futures are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady forward indicators, Aluminum Futures exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Live Nation and Aluminum Futures

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

The idea behind Live Nation Entertainment and Aluminum Futures 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.