Correlation Between Omnicom and Townsquare Media

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

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

Diversification Opportunities for Omnicom and Townsquare Media

0.72

Correlation Coefficient

Omnicom  Townsquare Media

Poor diversification

The 3 months correlation between Omnicom and Townsquare is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Omnicom Group and Townsquare Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Townsquare Media and Omnicom 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 Omnicom Group are associated (or correlated) with Townsquare Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Townsquare Media has no effect on the direction of Omnicom i.e., Omnicom and Townsquare Media go up and down completely randomly.

Pair Corralation between Omnicom and Townsquare Media

Considering the 90-day investment horizon Omnicom Group is expected to generate 0.6 times more return on investment than Townsquare Media. However, Omnicom Group is 1.67 times less risky than Townsquare Media. It trades about -0.07 of its potential returns per unit of risk. Townsquare Media is currently generating about -0.07 per unit of risk. If you would invest  8,512  in Omnicom Group on December 30, 2024 and sell it today you would lose (488.00) from holding Omnicom Group or give up 5.73% of portfolio value over 90 days.

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

Omnicom Group  vs.  Townsquare Media

Omnicom Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Omnicom Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, Omnicom is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Townsquare Media

Risk-Adjusted Performance

Very Weak

Over the last 90 days Townsquare Media has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Omnicom and Townsquare Media

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

The idea behind Omnicom Group and Townsquare Media 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.