Correlation Between Penn National and DIVERSIFIED ROYALTY

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

Diversification Opportunities for Penn National and DIVERSIFIED ROYALTY

0.44

Correlation Coefficient

Penn National  DIVERSIFIED ROYALTY

Very weak diversification

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

Pair Corralation between Penn National and DIVERSIFIED ROYALTY

Assuming the 90 days horizon Penn National Gaming is expected to under-perform the DIVERSIFIED ROYALTY. In addition to that, Penn National is 1.02 times more volatile than DIVERSIFIED ROYALTY. It trades about -0.07 of its total potential returns per unit of risk. DIVERSIFIED ROYALTY is currently generating about -0.01 per unit of volatility. If you would invest  185.00  in DIVERSIFIED ROYALTY on December 22, 2024 and sell it today you would lose (10.00) from holding DIVERSIFIED ROYALTY or give up 5.41% of portfolio value over 90 days.

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

Penn National Gaming  vs.  DIVERSIFIED ROYALTY

Penn National Gaming

Risk-Adjusted Performance

Very Weak

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

DIVERSIFIED ROYALTY

Risk-Adjusted Performance

Very Weak

Over the last 90 days DIVERSIFIED ROYALTY has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, DIVERSIFIED ROYALTY is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Penn National and DIVERSIFIED ROYALTY

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

The idea behind Penn National Gaming and DIVERSIFIED ROYALTY 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.

Check out your portfolio center.

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 Valuation module to check real value of public entities based on technical and fundamental data.