Correlation Between Penn National and Eastman Chemical

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

Diversification Opportunities for Penn National and Eastman Chemical

-0.39

Correlation Coefficient

Penn National  Eastman Chemical

Very good diversification

The 3 months correlation between Penn and Eastman is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and Eastman Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastman Chemical 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 Eastman Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastman Chemical has no effect on the direction of Penn National i.e., Penn National and Eastman Chemical go up and down completely randomly.

Pair Corralation between Penn National and Eastman Chemical

Given the investment horizon of 90 days Penn National Gaming is expected to under-perform the Eastman Chemical. In addition to that, Penn National is 20.03 times more volatile than Eastman Chemical. It trades about -0.08 of its total potential returns per unit of risk. Eastman Chemical is currently generating about 0.24 per unit of volatility. If you would invest  27,365  in Eastman Chemical on October 8, 2024 and sell it today you would earn a total of  175.00  from holding Eastman Chemical or generate 0.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	89.47%
Values	Daily Returns

Penn National Gaming  vs.  Eastman Chemical

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.

Eastman Chemical

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eastman Chemical are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong primary indicators, Eastman Chemical is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Penn National and Eastman Chemical

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

The idea behind Penn National Gaming and Eastman Chemical 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.