Correlation Between Penn National and Cosmo Metals

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

Diversification Opportunities for Penn National and Cosmo Metals

0.45

Correlation Coefficient

Penn National  Cosmo Metals

Very weak diversification

The 3 months correlation between Penn and Cosmo is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and Cosmo Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cosmo Metals 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 Cosmo Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cosmo Metals has no effect on the direction of Penn National i.e., Penn National and Cosmo Metals go up and down completely randomly.

Pair Corralation between Penn National and Cosmo Metals

Given the investment horizon of 90 days Penn National Gaming is expected to under-perform the Cosmo Metals. But the stock apears to be less risky and, when comparing its historical volatility, Penn National Gaming is 2.77 times less risky than Cosmo Metals. The stock trades about -0.02 of its potential returns per unit of risk. The Cosmo Metals is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1.90  in Cosmo Metals on December 20, 2024 and sell it today you would lose (0.30) from holding Cosmo Metals or give up 15.79% of portfolio value over 90 days.

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

Penn National Gaming  vs.  Cosmo Metals

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.

Cosmo Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cosmo Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Cosmo Metals is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Penn National and Cosmo Metals

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

The idea behind Penn National Gaming and Cosmo Metals 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.