Correlation Between Live Nation and Digital Realty

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

Diversification Opportunities for Live Nation and Digital Realty

0.88

Correlation Coefficient

Live Nation  Digital Realty

Very poor diversification

The 3 months correlation between Live and Digital is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Live Nation Entertainment and Digital Realty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Realty Trust 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 Digital Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Realty Trust has no effect on the direction of Live Nation i.e., Live Nation and Digital Realty go up and down completely randomly.

Pair Corralation between Live Nation and Digital Realty

Assuming the 90 days trading horizon Live Nation Entertainment is expected to generate 1.0 times more return on investment than Digital Realty. However, Live Nation Entertainment is 1.0 times less risky than Digital Realty. It trades about 0.19 of its potential returns per unit of risk. Digital Realty Trust is currently generating about 0.08 per unit of risk. If you would invest  13,215  in Live Nation Entertainment on September 18, 2024 and sell it today you would earn a total of  573.00  from holding Live Nation Entertainment or generate 4.34% return on investment over 90 days.

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

Live Nation Entertainment  vs.  Digital Realty Trust

Live Nation Entertainment

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Live Nation Entertainment are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Live Nation unveiled solid returns over the last few months and may actually be approaching a breakup point.

Digital Realty Trust

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Realty Trust are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Digital Realty unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Live Nation and Digital Realty

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

The idea behind Live Nation Entertainment and Digital Realty Trust 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.