Correlation Between Penn National and INDOFOOD AGRI

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

Diversification Opportunities for Penn National and INDOFOOD AGRI

0.32

Correlation Coefficient

Penn National  INDOFOOD AGRI

Weak diversification

The 3 months correlation between Penn and INDOFOOD is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and INDOFOOD AGRI RES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INDOFOOD AGRI RES 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 INDOFOOD AGRI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INDOFOOD AGRI RES has no effect on the direction of Penn National i.e., Penn National and INDOFOOD AGRI go up and down completely randomly.

Pair Corralation between Penn National and INDOFOOD AGRI

Assuming the 90 days horizon Penn National Gaming is expected to under-perform the INDOFOOD AGRI. In addition to that, Penn National is 1.36 times more volatile than INDOFOOD AGRI RES. It trades about -0.03 of its total potential returns per unit of risk. INDOFOOD AGRI RES is currently generating about -0.02 per unit of volatility. If you would invest  22.00  in INDOFOOD AGRI RES on December 29, 2024 and sell it today you would lose (1.00) from holding INDOFOOD AGRI RES or give up 4.55% of portfolio value over 90 days.

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

Penn National Gaming  vs.  INDOFOOD AGRI RES

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.

INDOFOOD AGRI RES

Risk-Adjusted Performance

Very Weak

Over the last 90 days INDOFOOD AGRI RES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, INDOFOOD AGRI is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Penn National and INDOFOOD AGRI

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

The idea behind Penn National Gaming and INDOFOOD AGRI RES 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.