Correlation Between Townsquare Media and Darden Restaurants

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

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

Diversification Opportunities for Townsquare Media and Darden Restaurants

0.06

Correlation Coefficient

Townsquare Media  Darden Restaurants

Significant diversification

The 3 months correlation between Townsquare and Darden is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Townsquare Media and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants 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 Darden Restaurants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Darden Restaurants has no effect on the direction of Townsquare Media i.e., Townsquare Media and Darden Restaurants go up and down completely randomly.

Pair Corralation between Townsquare Media and Darden Restaurants

Assuming the 90 days horizon Townsquare Media is expected to under-perform the Darden Restaurants. But the stock apears to be less risky and, when comparing its historical volatility, Townsquare Media is 1.06 times less risky than Darden Restaurants. The stock trades about -0.01 of its potential returns per unit of risk. The Darden Restaurants is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  14,775  in Darden Restaurants on October 4, 2024 and sell it today you would earn a total of  3,085  from holding Darden Restaurants or generate 20.88% 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.  Darden Restaurants

Townsquare Media

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Townsquare Media has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Darden Restaurants

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Darden Restaurants unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Townsquare Media and Darden Restaurants

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

The idea behind Townsquare Media and Darden Restaurants 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.

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 the Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.