Correlation Between SMA Solar and Penn National

Can any of the company-specific risk be diversified away by investing in both SMA Solar and Penn National 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 SMA Solar and Penn National into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SMA Solar Technology and Penn National Gaming, you can compare the effects of market volatilities on SMA Solar and Penn National 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 SMA Solar with a short position of Penn National. Check out your portfolio center. Please also check ongoing floating volatility patterns of SMA Solar and Penn National.

Diversification Opportunities for SMA Solar and Penn National

-0.55

Correlation Coefficient

SMA Solar  Penn National

Excellent diversification

The 3 months correlation between SMA and Penn is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding SMA Solar Technology and Penn National Gaming in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Penn National Gaming and SMA Solar 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 SMA Solar Technology are associated (or correlated) with Penn National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Penn National Gaming has no effect on the direction of SMA Solar i.e., SMA Solar and Penn National go up and down completely randomly.

Pair Corralation between SMA Solar and Penn National

Assuming the 90 days horizon SMA Solar Technology is expected to generate 1.95 times more return on investment than Penn National. However, SMA Solar is 1.95 times more volatile than Penn National Gaming. It trades about 0.17 of its potential returns per unit of risk. Penn National Gaming is currently generating about -0.1 per unit of risk. If you would invest  1,382  in SMA Solar Technology on December 17, 2024 and sell it today you would earn a total of  888.00  from holding SMA Solar Technology or generate 64.25% return on investment over 90 days.

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

SMA Solar Technology  vs.  Penn National Gaming

SMA Solar Technology

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SMA Solar Technology are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, SMA Solar reported solid returns over the last few months and may actually be approaching a breakup point.

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 fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with SMA Solar and Penn National

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

The idea behind SMA Solar Technology and Penn National Gaming 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.