Correlation Between PENN Entertainment and First American

Can any of the company-specific risk be diversified away by investing in both PENN Entertainment and First American 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 Entertainment and First American into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between PENN Entertainment and First American Financial, you can compare the effects of market volatilities on PENN Entertainment and First American 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 Entertainment with a short position of First American. Check out your portfolio center. Please also check ongoing floating volatility patterns of PENN Entertainment and First American.

Diversification Opportunities for PENN Entertainment and First American

0.74

Correlation Coefficient

PENN Entertainment  First American

Poor diversification

The 3 months correlation between PENN and First is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding PENN Entertainment and First American Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First American Financial and PENN Entertainment 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 Entertainment are associated (or correlated) with First American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First American Financial has no effect on the direction of PENN Entertainment i.e., PENN Entertainment and First American go up and down completely randomly.

Pair Corralation between PENN Entertainment and First American

Assuming the 90 days trading horizon PENN Entertainment is expected to generate 2.47 times more return on investment than First American. However, PENN Entertainment is 2.47 times more volatile than First American Financial. It trades about -0.03 of its potential returns per unit of risk. First American Financial is currently generating about -0.39 per unit of risk. If you would invest  1,909  in PENN Entertainment on October 10, 2024 and sell it today you would lose (50.00) from holding PENN Entertainment or give up 2.62% of portfolio value over 90 days.

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

PENN Entertainment  vs.  First American Financial

PENN Entertainment

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PENN Entertainment are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, PENN Entertainment unveiled solid returns over the last few months and may actually be approaching a breakup point.

First American Financial

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First American Financial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, First American is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with PENN Entertainment and First American

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

The idea behind PENN Entertainment and First American Financial 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.