Correlation Between Fast Retailing and Penn National

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

By analyzing existing cross correlation between Fast Retailing Co and Penn National Gaming, you can compare the effects of market volatilities on Fast Retailing and Penn National 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 Fast Retailing with a short position of Penn National. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fast Retailing and Penn National.

Diversification Opportunities for Fast Retailing and Penn National

0.19

Correlation Coefficient

Fast Retailing  Penn National

Average diversification

The 3 months correlation between Fast and Penn is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Penn National Gaming in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Penn National Gaming and Fast Retailing 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 Fast Retailing Co are associated (or correlated) with Penn National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Penn National Gaming has no effect on the direction of Fast Retailing i.e., Fast Retailing and Penn National go up and down completely randomly.

Pair Corralation between Fast Retailing and Penn National

Assuming the 90 days trading horizon Fast Retailing Co is expected to generate 0.6 times more return on investment than Penn National. However, Fast Retailing Co is 1.66 times less risky than Penn National. It trades about 0.04 of its potential returns per unit of risk. Penn National Gaming is currently generating about -0.25 per unit of risk. If you would invest  33,080  in Fast Retailing Co on October 5, 2024 and sell it today you would earn a total of  340.00  from holding Fast Retailing Co or generate 1.03% return on investment over 90 days.

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

Fast Retailing Co  vs.  Penn National Gaming

Fast Retailing

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Fast Retailing Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather uncertain basic indicators, Fast Retailing may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Penn National Gaming

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Penn National Gaming has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Penn National may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Fast Retailing and Penn National

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

The idea behind Fast Retailing Co and Penn National 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.

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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.