Correlation Between Universal Entertainment and Townsquare Media

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

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

Diversification Opportunities for Universal Entertainment and Townsquare Media

-0.18

Correlation Coefficient

Universal Entertainment  Townsquare Media

Good diversification

The 3 months correlation between Universal and Townsquare is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Universal Entertainment and Townsquare Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Townsquare Media and Universal Entertainment 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 Universal Entertainment 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 Universal Entertainment i.e., Universal Entertainment and Townsquare Media go up and down completely randomly.

Pair Corralation between Universal Entertainment and Townsquare Media

Assuming the 90 days trading horizon Universal Entertainment is expected to generate 1.13 times more return on investment than Townsquare Media. However, Universal Entertainment is 1.13 times more volatile than Townsquare Media. It trades about 0.04 of its potential returns per unit of risk. Townsquare Media is currently generating about -0.03 per unit of risk. If you would invest  615.00  in Universal Entertainment on December 2, 2024 and sell it today you would earn a total of  20.00  from holding Universal Entertainment or generate 3.25% return on investment over 90 days.

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

Universal Entertainment  vs.  Townsquare Media

Universal Entertainment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Universal Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Universal Entertainment is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

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. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Universal Entertainment and Townsquare Media

The main advantage of trading using opposite Universal Entertainment and Townsquare Media positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal Entertainment 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 Universal Entertainment 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.

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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.