Correlation Between Madison Square and Live Nation

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

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

Diversification Opportunities for Madison Square and Live Nation

0.96

Correlation Coefficient

Madison Square  Live Nation

Almost no diversification

The 3 months correlation between Madison and Live is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Madison Square Garden 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 Madison Square 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 Madison Square Garden 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 Madison Square i.e., Madison Square and Live Nation go up and down completely randomly.

Pair Corralation between Madison Square and Live Nation

Assuming the 90 days horizon Madison Square is expected to generate 2.74 times less return on investment than Live Nation. But when comparing it to its historical volatility, Madison Square Garden is 1.55 times less risky than Live Nation. It trades about 0.2 of its potential returns per unit of risk. Live Nation Entertainment is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest  8,784  in Live Nation Entertainment on August 31, 2024 and sell it today you would earn a total of  4,411  from holding Live Nation Entertainment or generate 50.22% return on investment over 90 days.

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

Madison Square Garden  vs.  Live Nation Entertainment

Madison Square Garden

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Madison Square Garden are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Madison Square reported solid returns over the last few months and may actually be approaching a breakup point.

Live Nation Entertainment

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Live Nation Entertainment are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Live Nation reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Madison Square and Live Nation

The main advantage of trading using opposite Madison Square and Live Nation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Madison Square 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 Madison Square Garden 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.