Correlation Between Penn National and Johnson Electric

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

Diversification Opportunities for Penn National and Johnson Electric

-0.36

Correlation Coefficient

Penn National  Johnson Electric

Very good diversification

The 3 months correlation between Penn and Johnson is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and Johnson Electric Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Electric Holdings 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 Johnson Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Electric Holdings has no effect on the direction of Penn National i.e., Penn National and Johnson Electric go up and down completely randomly.

Pair Corralation between Penn National and Johnson Electric

Given the investment horizon of 90 days Penn National is expected to generate 4.11 times less return on investment than Johnson Electric. In addition to that, Penn National is 1.14 times more volatile than Johnson Electric Holdings. It trades about 0.02 of its total potential returns per unit of risk. Johnson Electric Holdings is currently generating about 0.1 per unit of volatility. If you would invest  117.00  in Johnson Electric Holdings on October 8, 2024 and sell it today you would earn a total of  17.00  from holding Johnson Electric Holdings or generate 14.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

Penn National Gaming  vs.  Johnson Electric Holdings

Penn National Gaming

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Penn National Gaming are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Johnson Electric Holdings

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Electric Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical indicators, Johnson Electric reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Penn National and Johnson Electric

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

The idea behind Penn National Gaming and Johnson Electric Holdings 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.