Correlation Between Penn National and BJs Restaurants

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

Diversification Opportunities for Penn National and BJs Restaurants

0.67

Correlation Coefficient

Penn National  BJs Restaurants

Poor diversification

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

Pair Corralation between Penn National and BJs Restaurants

Assuming the 90 days horizon Penn National Gaming is expected to generate 1.49 times more return on investment than BJs Restaurants. However, Penn National is 1.49 times more volatile than BJs Restaurants. It trades about -0.04 of its potential returns per unit of risk. BJs Restaurants is currently generating about -0.09 per unit of risk. If you would invest  1,736  in Penn National Gaming on December 20, 2024 and sell it today you would lose (164.00) from holding Penn National Gaming or give up 9.45% of portfolio value over 90 days.

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

Penn National Gaming  vs.  BJs Restaurants

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 fragile 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.

BJs Restaurants

Risk-Adjusted Performance

Very Weak

Over the last 90 days BJs Restaurants has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Penn National and BJs Restaurants

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

The idea behind Penn National Gaming and BJs Restaurants 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.