Correlation Between Penn National and Micron Technology

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

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

Diversification Opportunities for Penn National and Micron Technology

0.2

Correlation Coefficient

Penn National  Micron Technology

Modest diversification

The 3 months correlation between Penn and Micron is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and Micron Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micron Technology and Penn National 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 Penn National Gaming are associated (or correlated) with Micron Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Micron Technology has no effect on the direction of Penn National i.e., Penn National and Micron Technology go up and down completely randomly.

Pair Corralation between Penn National and Micron Technology

Given the investment horizon of 90 days Penn National Gaming is expected to under-perform the Micron Technology. But the stock apears to be less risky and, when comparing its historical volatility, Penn National Gaming is 1.27 times less risky than Micron Technology. The stock trades about -0.01 of its potential returns per unit of risk. The Micron Technology is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  8,955  in Micron Technology on December 21, 2024 and sell it today you would earn a total of  1,327  from holding Micron Technology or generate 14.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Penn National Gaming  vs.  Micron Technology

Penn National Gaming

Risk-Adjusted Performance

Very Weak

Over the last 90 days Penn National Gaming has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Penn National is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Micron Technology

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Micron Technology are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Micron Technology unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Penn National and Micron Technology

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

The idea behind Penn National Gaming and Micron Technology 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.