Correlation Between North American and Live Nation

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

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

Diversification Opportunities for North American and Live Nation

0.78

Correlation Coefficient

North American  Live Nation

Poor diversification

The 3 months correlation between North and Live is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction 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 North American 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 North American Construction 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 North American i.e., North American and Live Nation go up and down completely randomly.

Pair Corralation between North American and Live Nation

Assuming the 90 days horizon North American Construction is expected to generate 1.78 times more return on investment than Live Nation. However, North American is 1.78 times more volatile than Live Nation Entertainment. It trades about 0.15 of its potential returns per unit of risk. Live Nation Entertainment is currently generating about -0.15 per unit of risk. If you would invest  1,808  in North American Construction on September 23, 2024 and sell it today you would earn a total of  152.00  from holding North American Construction or generate 8.41% return on investment over 90 days.

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

North American Construction  vs.  Live Nation Entertainment

North American Const

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in North American Construction are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, North American reported solid returns over the last few months and may actually be approaching a breakup point.

Live Nation Entertainment

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Live Nation Entertainment are ranked lower than 20 (%) 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 North American and Live Nation

The main advantage of trading using opposite North American and Live Nation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American 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 North American Construction 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.

Check out your portfolio center.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..