Correlation Between McDonalds and Live Nation

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

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

Diversification Opportunities for McDonalds and Live Nation

0.29

Correlation Coefficient

McDonalds  Live Nation

Modest diversification

The 3 months correlation between McDonalds and Live is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Live Nation Entertainment, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Live Nation Entertai and McDonalds 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 McDonalds 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 Entertai has no effect on the direction of McDonalds i.e., McDonalds and Live Nation go up and down completely randomly.

Pair Corralation between McDonalds and Live Nation

Assuming the 90 days trading horizon McDonalds is expected to generate 29.46 times less return on investment than Live Nation. But when comparing it to its historical volatility, McDonalds is 1.45 times less risky than Live Nation. It trades about 0.01 of its potential returns per unit of risk. Live Nation Entertainment, is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  13,597  in Live Nation Entertainment, on October 27, 2024 and sell it today you would earn a total of  2,943  from holding Live Nation Entertainment, or generate 21.64% return on investment over 90 days.

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

McDonalds  vs.  Live Nation Entertainment,

McDonalds

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days McDonalds has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, McDonalds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Live Nation Entertai

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 somewhat uncertain basic indicators, Live Nation sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with McDonalds and Live Nation

The main advantage of trading using opposite McDonalds and Live Nation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds 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 McDonalds 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.