Correlation Between Penn National and Federal National

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

Diversification Opportunities for Penn National and Federal National

0.49

Correlation Coefficient

Penn National  Federal National

Very weak diversification

The 3 months correlation between Penn and Federal is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and Federal National Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal National Mortgage 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 Federal National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal National Mortgage has no effect on the direction of Penn National i.e., Penn National and Federal National go up and down completely randomly.

Pair Corralation between Penn National and Federal National

Given the investment horizon of 90 days Penn National Gaming is expected to under-perform the Federal National. In addition to that, Penn National is 1.0 times more volatile than Federal National Mortgage. It trades about -0.03 of its total potential returns per unit of risk. Federal National Mortgage is currently generating about 0.06 per unit of volatility. If you would invest  1,665  in Federal National Mortgage on December 20, 2024 and sell it today you would earn a total of  143.00  from holding Federal National Mortgage or generate 8.59% return on investment over 90 days.

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

Penn National Gaming  vs.  Federal National Mortgage

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.

Federal National Mortgage

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Federal National Mortgage are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Federal National may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Penn National and Federal National

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

The idea behind Penn National Gaming and Federal National Mortgage 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.

Check out your portfolio center.

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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.