Correlation Between Penn National and Fortescue Metals

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

Diversification Opportunities for Penn National and Fortescue Metals

0.76

Correlation Coefficient

Penn National  Fortescue Metals

Poor diversification

The 3 months correlation between Penn and Fortescue is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and Fortescue Metals Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortescue 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 Fortescue Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortescue Metals has no effect on the direction of Penn National i.e., Penn National and Fortescue Metals go up and down completely randomly.

Pair Corralation between Penn National and Fortescue Metals

Given the investment horizon of 90 days Penn National Gaming is expected to generate 1.57 times more return on investment than Fortescue Metals. However, Penn National is 1.57 times more volatile than Fortescue Metals Group. It trades about -0.01 of its potential returns per unit of risk. Fortescue Metals Group is currently generating about -0.08 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 (76.00) from holding Penn National Gaming or give up 4.19% 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.  Fortescue Metals Group

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.

Fortescue Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fortescue Metals Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Penn National and Fortescue Metals

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

The idea behind Penn National Gaming and Fortescue Metals Group 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 Stocks Directory module to find actively traded stocks across global markets.