Correlation Between PENN NATL and Richardson Electronics

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

Diversification Opportunities for PENN NATL and Richardson Electronics

-0.27

Correlation Coefficient

PENN NATL  Richardson Electronics

Very good diversification

The 3 months correlation between PENN and Richardson is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding PENN NATL GAMING and Richardson Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Richardson Electronics 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 Richardson Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Richardson Electronics has no effect on the direction of PENN NATL i.e., PENN NATL and Richardson Electronics go up and down completely randomly.

Pair Corralation between PENN NATL and Richardson Electronics

Assuming the 90 days trading horizon PENN NATL GAMING is expected to generate 1.17 times more return on investment than Richardson Electronics. However, PENN NATL is 1.17 times more volatile than Richardson Electronics. It trades about -0.02 of its potential returns per unit of risk. Richardson Electronics is currently generating about -0.05 per unit of risk. If you would invest  2,039  in PENN NATL GAMING on December 1, 2024 and sell it today you would lose (92.00) from holding PENN NATL GAMING or give up 4.51% of portfolio value over 90 days.

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

PENN NATL GAMING  vs.  Richardson Electronics

PENN NATL GAMING

Risk-Adjusted Performance

Very Weak

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

Richardson Electronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Richardson Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with PENN NATL and Richardson Electronics

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

The idea behind PENN NATL GAMING and Richardson Electronics 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.