Correlation Between Penn National and Tile Shop

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

Diversification Opportunities for Penn National and Tile Shop

0.44

Correlation Coefficient

Penn National  Tile Shop

Very weak diversification

The 3 months correlation between Penn and Tile is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and Tile Shop Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tile Shop Holdings 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 Tile Shop. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tile Shop Holdings has no effect on the direction of Penn National i.e., Penn National and Tile Shop go up and down completely randomly.

Pair Corralation between Penn National and Tile Shop

Assuming the 90 days horizon Penn National is expected to generate 1.17 times less return on investment than Tile Shop. In addition to that, Penn National is 1.51 times more volatile than Tile Shop Holdings. It trades about 0.07 of its total potential returns per unit of risk. Tile Shop Holdings is currently generating about 0.13 per unit of volatility. If you would invest  610.00  in Tile Shop Holdings on October 6, 2024 and sell it today you would earn a total of  65.00  from holding Tile Shop Holdings or generate 10.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.5%
Values	Daily Returns

Penn National Gaming  vs.  Tile Shop Holdings

Penn National Gaming

Risk-Adjusted Performance

6 of 100

Modest

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

Tile Shop Holdings

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tile Shop Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Tile Shop reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Penn National and Tile Shop

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

The idea behind Penn National Gaming and Tile Shop Holdings 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.