Correlation Between Townsquare Media and WPP Plc

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

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

Diversification Opportunities for Townsquare Media and WPP Plc

0.03

Correlation Coefficient

Townsquare Media  WPP Plc

Significant diversification

The 3 months correlation between Townsquare and WPP is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Townsquare Media and WPP plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WPP plc 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 WPP Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WPP plc has no effect on the direction of Townsquare Media i.e., Townsquare Media and WPP Plc go up and down completely randomly.

Pair Corralation between Townsquare Media and WPP Plc

Considering the 90-day investment horizon Townsquare Media is expected to generate 1.05 times less return on investment than WPP Plc. But when comparing it to its historical volatility, Townsquare Media is 1.67 times less risky than WPP Plc. It trades about 0.04 of its potential returns per unit of risk. WPP plc is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,025  in WPP plc on October 4, 2024 and sell it today you would earn a total of  26.00  from holding WPP plc or generate 2.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	70.56%
Values	Daily Returns

Townsquare Media  vs.  WPP plc

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. 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.

WPP plc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WPP plc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, WPP Plc may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Townsquare Media and WPP Plc

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

The idea behind Townsquare Media and WPP plc 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.