Correlation Between Penn National and Virtu Financial

Can any of the company-specific risk be diversified away by investing in both Penn National and Virtu Financial 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 Virtu Financial 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 Virtu Financial, you can compare the effects of market volatilities on Penn National and Virtu Financial 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 Virtu Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Penn National and Virtu Financial.

Diversification Opportunities for Penn National and Virtu Financial

0.39

Correlation Coefficient

Penn National  Virtu Financial

Weak diversification

The 3 months correlation between Penn and Virtu is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and Virtu Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Virtu Financial 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 Virtu Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Virtu Financial has no effect on the direction of Penn National i.e., Penn National and Virtu Financial go up and down completely randomly.

Pair Corralation between Penn National and Virtu Financial

Given the investment horizon of 90 days Penn National is expected to generate 2.8 times less return on investment than Virtu Financial. In addition to that, Penn National is 1.46 times more volatile than Virtu Financial. It trades about 0.04 of its total potential returns per unit of risk. Virtu Financial is currently generating about 0.17 per unit of volatility. If you would invest  2,900  in Virtu Financial on October 8, 2024 and sell it today you would earn a total of  580.00  from holding Virtu Financial or generate 20.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Penn National Gaming  vs.  Virtu Financial

Penn National Gaming

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Penn National Gaming are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Penn National may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Virtu Financial

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Virtu Financial are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Virtu Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Penn National and Virtu Financial

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

The idea behind Penn National Gaming and Virtu Financial 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.