Correlation Between Barrett Business and PENN NATL

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

By analyzing existing cross correlation between Barrett Business Services and PENN NATL GAMING, you can compare the effects of market volatilities on Barrett Business and PENN NATL 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 Barrett Business with a short position of PENN NATL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Barrett Business and PENN NATL.

Diversification Opportunities for Barrett Business and PENN NATL

0.67

Correlation Coefficient

Barrett Business  PENN NATL

Poor diversification

The 3 months correlation between Barrett and PENN is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Barrett Business Services and PENN NATL GAMING in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PENN NATL GAMING and Barrett Business 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 Barrett Business Services are associated (or correlated) with PENN NATL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PENN NATL GAMING has no effect on the direction of Barrett Business i.e., Barrett Business and PENN NATL go up and down completely randomly.

Pair Corralation between Barrett Business and PENN NATL

Assuming the 90 days horizon Barrett Business Services is expected to generate 0.39 times more return on investment than PENN NATL. However, Barrett Business Services is 2.59 times less risky than PENN NATL. It trades about 0.01 of its potential returns per unit of risk. PENN NATL GAMING is currently generating about -0.04 per unit of risk. If you would invest  4,040  in Barrett Business Services on October 10, 2024 and sell it today you would earn a total of  0.00  from holding Barrett Business Services or generate 0.0% return on investment over 90 days.

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

Barrett Business Services  vs.  PENN NATL GAMING

Barrett Business Services

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Barrett Business Services are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Barrett Business reported solid returns over the last few months and may actually be approaching a breakup point.

PENN NATL GAMING

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PENN NATL GAMING are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, PENN NATL exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Barrett Business and PENN NATL

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

The idea behind Barrett Business Services and PENN NATL GAMING 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.