Correlation Between Penn National and Vale SA

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

Diversification Opportunities for Penn National and Vale SA

-0.18

Correlation Coefficient

Penn National  Vale SA

Good diversification

The 3 months correlation between Penn and Vale is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA 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 Vale SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale SA has no effect on the direction of Penn National i.e., Penn National and Vale SA go up and down completely randomly.

Pair Corralation between Penn National and Vale SA

Assuming the 90 days horizon Penn National Gaming is expected to under-perform the Vale SA. In addition to that, Penn National is 2.15 times more volatile than Vale SA. It trades about -0.04 of its total potential returns per unit of risk. Vale SA is currently generating about 0.1 per unit of volatility. If you would invest  861.00  in Vale SA on December 28, 2024 and sell it today you would earn a total of  79.00  from holding Vale SA or generate 9.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Penn National Gaming  vs.  Vale SA

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 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.

Vale SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vale SA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Vale SA may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Penn National and Vale SA

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

The idea behind Penn National Gaming and Vale SA 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.