Correlation Between Penn National and Capital Group

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

Diversification Opportunities for Penn National and Capital Group

0.79

Correlation Coefficient

Penn National  Capital Group

Poor diversification

The 3 months correlation between Penn and Capital is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and Capital Group Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Group Core 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 Capital Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Group Core has no effect on the direction of Penn National i.e., Penn National and Capital Group go up and down completely randomly.

Pair Corralation between Penn National and Capital Group

Given the investment horizon of 90 days Penn National Gaming is expected to under-perform the Capital Group. In addition to that, Penn National is 4.65 times more volatile than Capital Group Core. It trades about -0.02 of its total potential returns per unit of risk. Capital Group Core is currently generating about -0.01 per unit of volatility. If you would invest  3,130  in Capital Group Core on December 20, 2024 and sell it today you would lose (15.00) from holding Capital Group Core or give up 0.48% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

Penn National Gaming  vs.  Capital Group Core

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.

Capital Group Core

Risk-Adjusted Performance

Very Weak

Over the last 90 days Capital Group Core has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental drivers, Capital Group is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Penn National and Capital Group

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

The idea behind Penn National Gaming and Capital Group Core 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.