Correlation Between Penn National and TRB

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

Diversification Opportunities for Penn National and TRB

0.5

Correlation Coefficient

Penn National  TRB

Very weak diversification

The 3 months correlation between Penn and TRB is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and TRB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TRB 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 TRB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TRB has no effect on the direction of Penn National i.e., Penn National and TRB go up and down completely randomly.

Pair Corralation between Penn National and TRB

Given the investment horizon of 90 days Penn National Gaming is expected to generate 0.38 times more return on investment than TRB. However, Penn National Gaming is 2.61 times less risky than TRB. It trades about 0.05 of its potential returns per unit of risk. TRB is currently generating about -0.01 per unit of risk. If you would invest  1,862  in Penn National Gaming on October 23, 2024 and sell it today you would earn a total of  140.00  from holding Penn National Gaming or generate 7.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Penn National Gaming  vs.  TRB

Penn National Gaming

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Penn National Gaming are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Penn National may actually be approaching a critical reversion point that can send shares even higher in February 2025.

TRB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TRB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, TRB is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Penn National and TRB

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

The idea behind Penn National Gaming and TRB 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.