Correlation Between PENN NATL and RWE AG

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

Diversification Opportunities for PENN NATL and RWE AG

-0.6

Correlation Coefficient

PENN NATL  RWE AG

Excellent diversification

The 3 months correlation between PENN and RWE is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding PENN NATL GAMING and RWE AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RWE AG 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 RWE AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RWE AG has no effect on the direction of PENN NATL i.e., PENN NATL and RWE AG go up and down completely randomly.

Pair Corralation between PENN NATL and RWE AG

Assuming the 90 days trading horizon PENN NATL GAMING is expected to under-perform the RWE AG. In addition to that, PENN NATL is 2.1 times more volatile than RWE AG. It trades about -0.07 of its total potential returns per unit of risk. RWE AG is currently generating about 0.21 per unit of volatility. If you would invest  2,800  in RWE AG on December 20, 2024 and sell it today you would earn a total of  527.00  from holding RWE AG or generate 18.82% return on investment over 90 days.

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

PENN NATL GAMING  vs.  RWE AG

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 latest fragile performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

RWE AG

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in RWE AG are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, RWE AG exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PENN NATL and RWE AG

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

The idea behind PENN NATL GAMING and RWE AG 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.