Correlation Between Penn National and AMERICAN

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

Diversification Opportunities for Penn National and AMERICAN

-0.11

Correlation Coefficient

Penn National  AMERICAN

Good diversification

The 3 months correlation between Penn and AMERICAN is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and AMERICAN INTL GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMERICAN INTL GROUP 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 AMERICAN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AMERICAN INTL GROUP has no effect on the direction of Penn National i.e., Penn National and AMERICAN go up and down completely randomly.

Pair Corralation between Penn National and AMERICAN

Given the investment horizon of 90 days Penn National Gaming is expected to under-perform the AMERICAN. In addition to that, Penn National is 3.95 times more volatile than AMERICAN INTL GROUP. It trades about -0.01 of its total potential returns per unit of risk. AMERICAN INTL GROUP is currently generating about 0.01 per unit of volatility. If you would invest  10,616  in AMERICAN INTL GROUP on December 24, 2024 and sell it today you would earn a total of  4.00  from holding AMERICAN INTL GROUP or generate 0.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	28.33%
Values	Daily Returns

Penn National Gaming  vs.  AMERICAN INTL GROUP

Penn National Gaming

Risk-Adjusted Performance

Very Weak

Over the last 90 days Penn National Gaming has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

AMERICAN INTL GROUP

Risk-Adjusted Performance

Very Weak

Over the last 90 days AMERICAN INTL GROUP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, AMERICAN 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 AMERICAN

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

The idea behind Penn National Gaming and AMERICAN INTL GROUP 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.