Correlation Between Penn National and Zimmer Biomet

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

Diversification Opportunities for Penn National and Zimmer Biomet

0.73

Correlation Coefficient

Penn National  Zimmer Biomet

Poor diversification

The 3 months correlation between Penn and Zimmer is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and Zimmer Biomet Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zimmer Biomet Holdings 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 Zimmer Biomet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zimmer Biomet Holdings has no effect on the direction of Penn National i.e., Penn National and Zimmer Biomet go up and down completely randomly.

Pair Corralation between Penn National and Zimmer Biomet

Assuming the 90 days horizon Penn National Gaming is expected to generate 2.27 times more return on investment than Zimmer Biomet. However, Penn National is 2.27 times more volatile than Zimmer Biomet Holdings. It trades about 0.07 of its potential returns per unit of risk. Zimmer Biomet Holdings is currently generating about 0.12 per unit of risk. If you would invest  1,710  in Penn National Gaming on October 24, 2024 and sell it today you would earn a total of  201.00  from holding Penn National Gaming or generate 11.75% 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.  Zimmer Biomet Holdings

Penn National Gaming

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Penn National Gaming are ranked lower than 5 (%) 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.

Zimmer Biomet Holdings

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Zimmer Biomet Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain primary indicators, Zimmer Biomet may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Penn National and Zimmer Biomet

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

The idea behind Penn National Gaming and Zimmer Biomet Holdings 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.