Correlation Between Penn National and CARSALES

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

Diversification Opportunities for Penn National and CARSALES

0.81

Correlation Coefficient

Penn National  CARSALES

Very poor diversification

The 3 months correlation between Penn and CARSALES is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and CARSALESCOM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CARSALESCOM 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 CARSALES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CARSALESCOM has no effect on the direction of Penn National i.e., Penn National and CARSALES go up and down completely randomly.

Pair Corralation between Penn National and CARSALES

Assuming the 90 days horizon Penn National Gaming is expected to generate 1.9 times more return on investment than CARSALES. However, Penn National is 1.9 times more volatile than CARSALESCOM. It trades about 0.13 of its potential returns per unit of risk. CARSALESCOM is currently generating about 0.16 per unit of risk. If you would invest  1,660  in Penn National Gaming on August 31, 2024 and sell it today you would earn a total of  357.00  from holding Penn National Gaming or generate 21.51% return on investment over 90 days.

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

Penn National Gaming  vs.  CARSALESCOM

Penn National Gaming

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Penn National Gaming are ranked lower than 10 (%) 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.

CARSALESCOM

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CARSALESCOM are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, CARSALES exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Penn National and CARSALES

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

The idea behind Penn National Gaming and CARSALESCOM 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.