Correlation Between Penn National and Chang Type

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

Diversification Opportunities for Penn National and Chang Type

-0.2

Correlation Coefficient

Penn National  Chang Type

Good diversification

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

Pair Corralation between Penn National and Chang Type

Given the investment horizon of 90 days Penn National Gaming is expected to under-perform the Chang Type. In addition to that, Penn National is 1.18 times more volatile than Chang Type Industrial. It trades about -0.02 of its total potential returns per unit of risk. Chang Type Industrial is currently generating about 0.01 per unit of volatility. If you would invest  2,770  in Chang Type Industrial on December 21, 2024 and sell it today you would lose (15.00) from holding Chang Type Industrial or give up 0.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.33%
Values	Daily Returns

Penn National Gaming  vs.  Chang Type Industrial

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.

Chang Type Industrial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Chang Type Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Chang Type is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Penn National and Chang Type

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

The idea behind Penn National Gaming and Chang Type Industrial 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.