Correlation Between Penn National and PT Indofood

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

Diversification Opportunities for Penn National and PT Indofood

0.67

Correlation Coefficient

Penn National  PT Indofood

Poor diversification

The 3 months correlation between Penn and ISM is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and PT Indofood Sukses in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Indofood Sukses 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 PT Indofood. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Indofood Sukses has no effect on the direction of Penn National i.e., Penn National and PT Indofood go up and down completely randomly.

Pair Corralation between Penn National and PT Indofood

Assuming the 90 days horizon Penn National Gaming is expected to under-perform the PT Indofood. But the stock apears to be less risky and, when comparing its historical volatility, Penn National Gaming is 1.23 times less risky than PT Indofood. The stock trades about -0.01 of its potential returns per unit of risk. The PT Indofood Sukses is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  38.00  in PT Indofood Sukses on September 20, 2024 and sell it today you would earn a total of  8.00  from holding PT Indofood Sukses or generate 21.05% return on investment over 90 days.

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

Penn National Gaming  vs.  PT Indofood Sukses

Penn National Gaming

Risk-Adjusted Performance

2 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Penn National Gaming are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Penn National is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

PT Indofood Sukses

Risk-Adjusted Performance

6 of 100

OK

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

Pair Trading with Penn National and PT Indofood

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

The idea behind Penn National Gaming and PT Indofood Sukses 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.