Correlation Between PENN NATL and China Eastern

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

Diversification Opportunities for PENN NATL and China Eastern

0.4

Correlation Coefficient

PENN NATL  China Eastern

Very weak diversification

The 3 months correlation between PENN and China is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding PENN NATL GAMING and China Eastern Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Eastern Airlines 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 China Eastern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Eastern Airlines has no effect on the direction of PENN NATL i.e., PENN NATL and China Eastern go up and down completely randomly.

Pair Corralation between PENN NATL and China Eastern

Assuming the 90 days trading horizon PENN NATL GAMING is expected to under-perform the China Eastern. In addition to that, PENN NATL is 1.24 times more volatile than China Eastern Airlines. It trades about -0.11 of its total potential returns per unit of risk. China Eastern Airlines is currently generating about -0.14 per unit of volatility. If you would invest  31.00  in China Eastern Airlines on October 8, 2024 and sell it today you would lose (2.00) from holding China Eastern Airlines or give up 6.45% of portfolio value over 90 days.

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

PENN NATL GAMING  vs.  China Eastern Airlines

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 uncertain basic indicators, PENN NATL may actually be approaching a critical reversion point that can send shares even higher in February 2025.

China Eastern Airlines

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Eastern Airlines are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Eastern reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PENN NATL and China Eastern

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

The idea behind PENN NATL GAMING and China Eastern Airlines 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.