Correlation Between Penn National and First Fidelity

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

Diversification Opportunities for Penn National and First Fidelity

-0.03

Correlation Coefficient

Penn National  First Fidelity

Good diversification

The 3 months correlation between Penn and First is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and First Fidelity Leasing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Fidelity Leasing 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 First Fidelity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Fidelity Leasing has no effect on the direction of Penn National i.e., Penn National and First Fidelity go up and down completely randomly.

Pair Corralation between Penn National and First Fidelity

Given the investment horizon of 90 days Penn National Gaming is expected to generate 0.88 times more return on investment than First Fidelity. However, Penn National Gaming is 1.14 times less risky than First Fidelity. It trades about -0.01 of its potential returns per unit of risk. First Fidelity Leasing is currently generating about -0.04 per unit of risk. If you would invest  1,813  in Penn National Gaming on December 21, 2024 and sell it today you would lose (97.00) from holding Penn National Gaming or give up 5.35% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.92%
Values	Daily Returns

Penn National Gaming  vs.  First Fidelity Leasing

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.

First Fidelity Leasing

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Fidelity Leasing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Penn National and First Fidelity

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

The idea behind Penn National Gaming and First Fidelity Leasing 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.