Correlation Between Penn National and China National

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

Diversification Opportunities for Penn National and China National

-0.12

Correlation Coefficient

Penn National  China National

Good diversification

The 3 months correlation between Penn and China is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and China National Medicines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China National Medicines 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 China National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China National Medicines has no effect on the direction of Penn National i.e., Penn National and China National go up and down completely randomly.

Pair Corralation between Penn National and China National

Given the investment horizon of 90 days Penn National Gaming is expected to generate 2.21 times more return on investment than China National. However, Penn National is 2.21 times more volatile than China National Medicines. It trades about -0.01 of its potential returns per unit of risk. China National Medicines is currently generating about -0.16 per unit of risk. If you would invest  1,813  in Penn National Gaming on December 22, 2024 and sell it today you would lose (76.00) from holding Penn National Gaming or give up 4.19% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.67%
Values	Daily Returns

Penn National Gaming  vs.  China National Medicines

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.

China National Medicines

Risk-Adjusted Performance

Very Weak

Over the last 90 days China National Medicines has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Penn National and China National

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

The idea behind Penn National Gaming and China National Medicines 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.