Correlation Between Penn National and American Electric

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

Diversification Opportunities for Penn National and American Electric

0.56

Correlation Coefficient

Penn National  American Electric

Very weak diversification

The 3 months correlation between Penn and American is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and American Electric Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Electric Power 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 American Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Electric Power has no effect on the direction of Penn National i.e., Penn National and American Electric go up and down completely randomly.

Pair Corralation between Penn National and American Electric

Given the investment horizon of 90 days Penn National Gaming is expected to under-perform the American Electric. In addition to that, Penn National is 4.0 times more volatile than American Electric Power. It trades about -0.08 of its total potential returns per unit of risk. American Electric Power is currently generating about -0.13 per unit of volatility. If you would invest  9,100  in American Electric Power on October 8, 2024 and sell it today you would lose (150.00) from holding American Electric Power or give up 1.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	84.21%
Values	Daily Returns

Penn National Gaming  vs.  American Electric Power

Penn National Gaming

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Penn National Gaming are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Penn National may actually be approaching a critical reversion point that can send shares even higher in February 2025.

American Electric Power

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Electric Power are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, American Electric 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 American Electric

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

The idea behind Penn National Gaming and American Electric Power 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.