Correlation Between Disney and Live Nation

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Can any of the company-specific risk be diversified away by investing in both Disney 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 Disney and Live Nation into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Walt Disney and Live Nation Entertainment, you can compare the effects of market volatilities on Disney 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 Disney with a short position of Live Nation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Disney and Live Nation.

Diversification Opportunities for Disney and Live Nation

0.88
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Disney and Live Nation is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney 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 Disney 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 Walt Disney 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 Disney i.e., Disney and Live Nation go up and down completely randomly.

Pair Corralation between Disney and Live Nation

Considering the 90-day investment horizon Walt Disney is expected to under-perform the Live Nation. But the stock apears to be less risky and, when comparing its historical volatility, Walt Disney is 1.4 times less risky than Live Nation. The stock trades about -0.07 of its potential returns per unit of risk. The Live Nation Entertainment is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  8,940  in Live Nation Entertainment on August 28, 2022 and sell it today you would lose (2,094)  from holding Live Nation Entertainment or give up 23.42% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Walt Disney  vs.  Live Nation Entertainment

 Performance (%) 
       Timeline  
Walt Disney 
Disney Performance
0 of 100
Over the last 90 days Walt Disney has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's forward indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Disney Price Channel

Live Nation Entertainment 
Live Nation Performance
0 of 100
Over the last 90 days Live Nation Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in December 2022. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Live Nation Price Channel

Disney and Live Nation Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Disney and Live Nation

The main advantage of trading using opposite Disney and Live Nation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Disney 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.
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The idea behind Walt Disney 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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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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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