Correlation Between Penn National and Red Rock

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

Diversification Opportunities for Penn National and Red Rock

0.02

Correlation Coefficient

Penn National  Red Rock

Significant diversification

The 3 months correlation between Penn and Red is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and Red Rock Resorts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Rock Resorts 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 Red Rock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Rock Resorts has no effect on the direction of Penn National i.e., Penn National and Red Rock go up and down completely randomly.

Pair Corralation between Penn National and Red Rock

Given the investment horizon of 90 days Penn National Gaming is expected to under-perform the Red Rock. In addition to that, Penn National is 1.59 times more volatile than Red Rock Resorts. It trades about -0.02 of its total potential returns per unit of risk. Red Rock Resorts is currently generating about 0.02 per unit of volatility. If you would invest  4,108  in Red Rock Resorts on October 4, 2024 and sell it today you would earn a total of  357.00  from holding Red Rock Resorts or generate 8.69% return on investment over 90 days.

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

Penn National Gaming  vs.  Red Rock Resorts

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.

Red Rock Resorts

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Red Rock Resorts has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in February 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Penn National and Red Rock

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

The idea behind Penn National Gaming and Red Rock Resorts 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.