Correlation Between PENN NATL and BHP Group

Can any of the company-specific risk be diversified away by investing in both PENN NATL and BHP Group 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 NATL and BHP Group into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between PENN NATL GAMING and BHP Group Limited, you can compare the effects of market volatilities on PENN NATL and BHP Group 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 NATL with a short position of BHP Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of PENN NATL and BHP Group.

Diversification Opportunities for PENN NATL and BHP Group

-0.57

Correlation Coefficient

PENN NATL  BHP Group

Excellent diversification

The 3 months correlation between PENN and BHP is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding PENN NATL GAMING and BHP Group Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BHP Group Limited and PENN NATL 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 NATL GAMING are associated (or correlated) with BHP Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BHP Group Limited has no effect on the direction of PENN NATL i.e., PENN NATL and BHP Group go up and down completely randomly.

Pair Corralation between PENN NATL and BHP Group

Assuming the 90 days trading horizon PENN NATL GAMING is expected to under-perform the BHP Group. In addition to that, PENN NATL is 1.96 times more volatile than BHP Group Limited. It trades about -0.01 of its total potential returns per unit of risk. BHP Group Limited is currently generating about -0.02 per unit of volatility. If you would invest  5,636  in BHP Group Limited on October 11, 2024 and sell it today you would lose (1,026) from holding BHP Group Limited or give up 18.2% of portfolio value over 90 days.

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

PENN NATL GAMING  vs.  BHP Group Limited

PENN NATL GAMING

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PENN NATL GAMING are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, PENN NATL may actually be approaching a critical reversion point that can send shares even higher in February 2025.

BHP Group Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BHP Group Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with PENN NATL and BHP Group

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

The idea behind PENN NATL GAMING and BHP Group Limited 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.