Correlation Between Penn National and CAPITAL

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

Diversification Opportunities for Penn National and CAPITAL

0.2

Correlation Coefficient

Penn National  CAPITAL

Modest diversification

The 3 months correlation between Penn and CAPITAL is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and CAPITAL ONE FINANCIAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CAPITAL ONE FINANCIAL 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 CAPITAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CAPITAL ONE FINANCIAL has no effect on the direction of Penn National i.e., Penn National and CAPITAL go up and down completely randomly.

Pair Corralation between Penn National and CAPITAL

Given the investment horizon of 90 days Penn National Gaming is expected to under-perform the CAPITAL. In addition to that, Penn National is 2.9 times more volatile than CAPITAL ONE FINANCIAL. It trades about -0.14 of its total potential returns per unit of risk. CAPITAL ONE FINANCIAL is currently generating about -0.23 per unit of volatility. If you would invest  9,770  in CAPITAL ONE FINANCIAL on October 7, 2024 and sell it today you would lose (490.00) from holding CAPITAL ONE FINANCIAL or give up 5.02% of portfolio value over 90 days.

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

Penn National Gaming  vs.  CAPITAL ONE FINANCIAL

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.

CAPITAL ONE FINANCIAL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CAPITAL ONE FINANCIAL has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CAPITAL is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Penn National and CAPITAL

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

The idea behind Penn National Gaming and CAPITAL ONE FINANCIAL 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.