Correlation Between Penn National and Principal Lifetime

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

Diversification Opportunities for Penn National and Principal Lifetime

0.53

Correlation Coefficient

Penn National  Principal Lifetime

Very weak diversification

The 3 months correlation between Penn and Principal is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and Principal Lifetime Hybrid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Lifetime Hybrid 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 Principal Lifetime. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Lifetime Hybrid has no effect on the direction of Penn National i.e., Penn National and Principal Lifetime go up and down completely randomly.

Pair Corralation between Penn National and Principal Lifetime

Given the investment horizon of 90 days Penn National Gaming is expected to generate 4.17 times more return on investment than Principal Lifetime. However, Penn National is 4.17 times more volatile than Principal Lifetime Hybrid. It trades about 0.02 of its potential returns per unit of risk. Principal Lifetime Hybrid is currently generating about -0.07 per unit of risk. If you would invest  1,857  in Penn National Gaming on October 7, 2024 and sell it today you would earn a total of  19.00  from holding Penn National Gaming or generate 1.02% 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.  Principal Lifetime Hybrid

Penn National Gaming

Risk-Adjusted Performance

1 of 100

Weak

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.

Principal Lifetime Hybrid

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Principal Lifetime Hybrid has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Principal Lifetime is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Penn National and Principal Lifetime

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

The idea behind Penn National Gaming and Principal Lifetime Hybrid 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.