Correlation Between Penn National and Ares Acquisition

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

Diversification Opportunities for Penn National and Ares Acquisition

-0.11

Correlation Coefficient

Penn National  Ares Acquisition

Good diversification

The 3 months correlation between Penn and Ares is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and Ares Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares Acquisition 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 Ares Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ares Acquisition has no effect on the direction of Penn National i.e., Penn National and Ares Acquisition go up and down completely randomly.

Pair Corralation between Penn National and Ares Acquisition

Given the investment horizon of 90 days Penn National Gaming is expected to under-perform the Ares Acquisition. In addition to that, Penn National is 25.28 times more volatile than Ares Acquisition. It trades about -0.02 of its total potential returns per unit of risk. Ares Acquisition is currently generating about 0.28 per unit of volatility. If you would invest  1,095  in Ares Acquisition on December 18, 2024 and sell it today you would earn a total of  22.00  from holding Ares Acquisition or generate 2.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Penn National Gaming  vs.  Ares Acquisition

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.

Ares Acquisition

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Acquisition are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, Ares Acquisition is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Penn National and Ares Acquisition

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

The idea behind Penn National Gaming and Ares Acquisition 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.