Correlation Between Penn National and Liuzhou Iron

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

Diversification Opportunities for Penn National and Liuzhou Iron

-0.42

Correlation Coefficient

Penn National  Liuzhou Iron

Very good diversification

The 3 months correlation between Penn and Liuzhou is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and Liuzhou Iron Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liuzhou Iron Steel 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 Liuzhou Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liuzhou Iron Steel has no effect on the direction of Penn National i.e., Penn National and Liuzhou Iron go up and down completely randomly.

Pair Corralation between Penn National and Liuzhou Iron

Given the investment horizon of 90 days Penn National Gaming is expected to under-perform the Liuzhou Iron. In addition to that, Penn National is 1.44 times more volatile than Liuzhou Iron Steel. It trades about -0.01 of its total potential returns per unit of risk. Liuzhou Iron Steel is currently generating about 0.12 per unit of volatility. If you would invest  279.00  in Liuzhou Iron Steel on December 23, 2024 and sell it today you would earn a total of  40.00  from holding Liuzhou Iron Steel or generate 14.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.72%
Values	Daily Returns

Penn National Gaming  vs.  Liuzhou Iron Steel

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.

Liuzhou Iron Steel

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Liuzhou Iron Steel are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Liuzhou Iron sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Penn National and Liuzhou Iron

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

The idea behind Penn National Gaming and Liuzhou Iron Steel 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.