Correlation Between Townsquare Media and China Railway

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

By analyzing existing cross correlation between Townsquare Media and China Railway Group, you can compare the effects of market volatilities on Townsquare Media and China Railway 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 China Railway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Townsquare Media and China Railway.

Diversification Opportunities for Townsquare Media and China Railway

0.01

Correlation Coefficient

Townsquare Media  China Railway

Significant diversification

The 3 months correlation between Townsquare and China is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Townsquare Media and China Railway Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Group 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 are associated (or correlated) with China Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Railway Group has no effect on the direction of Townsquare Media i.e., Townsquare Media and China Railway go up and down completely randomly.

Pair Corralation between Townsquare Media and China Railway

Assuming the 90 days horizon Townsquare Media is expected to under-perform the China Railway. But the stock apears to be less risky and, when comparing its historical volatility, Townsquare Media is 3.05 times less risky than China Railway. The stock trades about -0.02 of its potential returns per unit of risk. The China Railway Group is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  27.00  in China Railway Group on October 9, 2024 and sell it today you would earn a total of  19.00  from holding China Railway Group or generate 70.37% return on investment over 90 days.

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

Townsquare Media  vs.  China Railway Group

Townsquare Media

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Townsquare Media are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Townsquare Media is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

China Railway Group

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, China Railway is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Townsquare Media and China Railway

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

The idea behind Townsquare Media and China Railway Group 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.