Correlation Between Penn National and HNX

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

Diversification Opportunities for Penn National and HNX

-0.3

Correlation Coefficient

Penn National  HNX

Very good diversification

The 3 months correlation between Penn and HNX is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and HNX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HNX 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 HNX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HNX has no effect on the direction of Penn National i.e., Penn National and HNX go up and down completely randomly.

Pair Corralation between Penn National and HNX

Given the investment horizon of 90 days Penn National Gaming is expected to generate 5.43 times more return on investment than HNX. However, Penn National is 5.43 times more volatile than HNX. It trades about 0.19 of its potential returns per unit of risk. HNX is currently generating about -0.23 per unit of risk. If you would invest  1,813  in Penn National Gaming on October 23, 2024 and sell it today you would earn a total of  189.00  from holding Penn National Gaming or generate 10.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	85.71%
Values	Daily Returns

Penn National Gaming  vs.  HNX

Pair Trading with Penn National and HNX

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

The idea behind Penn National Gaming and HNX 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..