Correlation Between Penn National and Beijing YanDong

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

Diversification Opportunities for Penn National and Beijing YanDong

-0.06

Correlation Coefficient

Penn National  Beijing YanDong

Good diversification

The 3 months correlation between Penn and Beijing is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and Beijing YanDong MicroElectroni in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing YanDong Micr 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 Beijing YanDong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing YanDong Micr has no effect on the direction of Penn National i.e., Penn National and Beijing YanDong go up and down completely randomly.

Pair Corralation between Penn National and Beijing YanDong

Given the investment horizon of 90 days Penn National Gaming is expected to under-perform the Beijing YanDong. But the stock apears to be less risky and, when comparing its historical volatility, Penn National Gaming is 1.26 times less risky than Beijing YanDong. The stock trades about -0.01 of its potential returns per unit of risk. The Beijing YanDong MicroElectronic is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  2,140  in Beijing YanDong MicroElectronic on December 22, 2024 and sell it today you would lose (99.00) from holding Beijing YanDong MicroElectronic or give up 4.63% 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.  Beijing YanDong MicroElectroni

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.

Beijing YanDong Micr

Risk-Adjusted Performance

Very Weak

Over the last 90 days Beijing YanDong MicroElectronic has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Beijing YanDong is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Penn National and Beijing YanDong

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

The idea behind Penn National Gaming and Beijing YanDong MicroElectronic 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.