Correlation Between Penn National and Coca-Cola European

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

Diversification Opportunities for Penn National and Coca-Cola European

0.43

Correlation Coefficient

Penn National  Coca-Cola European

Very weak diversification

The 3 months correlation between Penn and Coca-Cola is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and Coca Cola European Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola European 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 Coca-Cola European. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coca Cola European has no effect on the direction of Penn National i.e., Penn National and Coca-Cola European go up and down completely randomly.

Pair Corralation between Penn National and Coca-Cola European

Assuming the 90 days horizon Penn National Gaming is expected to generate 1.64 times more return on investment than Coca-Cola European. However, Penn National is 1.64 times more volatile than Coca Cola European Partners. It trades about 0.08 of its potential returns per unit of risk. Coca Cola European Partners is currently generating about 0.07 per unit of risk. If you would invest  1,705  in Penn National Gaming on October 6, 2024 and sell it today you would earn a total of  203.00  from holding Penn National Gaming or generate 11.91% return on investment over 90 days.

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

Penn National Gaming  vs.  Coca Cola European Partners

Penn National Gaming

Risk-Adjusted Performance

6 of 100

Weak

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.

Coca Cola European

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Coca Cola European Partners are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Coca-Cola European may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Penn National and Coca-Cola European

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

The idea behind Penn National Gaming and Coca Cola European Partners 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.