Correlation Between Penn National and URBAN OUTFITTERS

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

Diversification Opportunities for Penn National and URBAN OUTFITTERS

0.69

Correlation Coefficient

Penn National  URBAN OUTFITTERS

Poor diversification

The 3 months correlation between Penn and URBAN is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and URBAN OUTFITTERS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on URBAN OUTFITTERS 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 URBAN OUTFITTERS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of URBAN OUTFITTERS has no effect on the direction of Penn National i.e., Penn National and URBAN OUTFITTERS go up and down completely randomly.

Pair Corralation between Penn National and URBAN OUTFITTERS

Assuming the 90 days horizon Penn National Gaming is expected to under-perform the URBAN OUTFITTERS. But the stock apears to be less risky and, when comparing its historical volatility, Penn National Gaming is 1.47 times less risky than URBAN OUTFITTERS. The stock trades about -0.04 of its potential returns per unit of risk. The URBAN OUTFITTERS is currently generating about 0.4 of returns per unit of risk over similar time horizon. If you would invest  3,600  in URBAN OUTFITTERS on September 20, 2024 and sell it today you would earn a total of  1,650  from holding URBAN OUTFITTERS or generate 45.83% 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.  URBAN OUTFITTERS

Penn National Gaming

Risk-Adjusted Performance

2 of 100

Weak

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.

URBAN OUTFITTERS

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in URBAN OUTFITTERS are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, URBAN OUTFITTERS unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Penn National and URBAN OUTFITTERS

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

The idea behind Penn National Gaming and URBAN OUTFITTERS 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.