Correlation Between TOWNSQUARE MEDIA and Caterpillar

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

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

Diversification Opportunities for TOWNSQUARE MEDIA and Caterpillar

0.67

Correlation Coefficient

TOWNSQUARE MEDIA  Caterpillar

Poor diversification

The 3 months correlation between TOWNSQUARE and Caterpillar is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding TOWNSQUARE MEDIA INC and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and TOWNSQUARE MEDIA 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 TOWNSQUARE MEDIA INC are associated (or correlated) with Caterpillar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caterpillar has no effect on the direction of TOWNSQUARE MEDIA i.e., TOWNSQUARE MEDIA and Caterpillar go up and down completely randomly.

Pair Corralation between TOWNSQUARE MEDIA and Caterpillar

Assuming the 90 days trading horizon TOWNSQUARE MEDIA INC is expected to generate 1.31 times more return on investment than Caterpillar. However, TOWNSQUARE MEDIA is 1.31 times more volatile than Caterpillar. It trades about -0.06 of its potential returns per unit of risk. Caterpillar is currently generating about -0.08 per unit of risk. If you would invest  860.00  in TOWNSQUARE MEDIA INC on December 28, 2024 and sell it today you would lose (85.00) from holding TOWNSQUARE MEDIA INC or give up 9.88% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

TOWNSQUARE MEDIA INC  vs.  Caterpillar

TOWNSQUARE MEDIA INC

Risk-Adjusted Performance

Very Weak

Over the last 90 days TOWNSQUARE MEDIA INC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Caterpillar

Risk-Adjusted Performance

Very Weak

Over the last 90 days Caterpillar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with TOWNSQUARE MEDIA and Caterpillar

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

The idea behind TOWNSQUARE MEDIA INC and Caterpillar 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 Stocks Directory module to find actively traded stocks across global markets.