Correlation Between Sunstone Hotel and Penn National

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

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

Diversification Opportunities for Sunstone Hotel and Penn National

0.45

Correlation Coefficient

Sunstone Hotel  Penn National

Very weak diversification

The 3 months correlation between Sunstone and Penn is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Sunstone Hotel Investors 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 Sunstone Hotel 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 Sunstone Hotel Investors 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 Sunstone Hotel i.e., Sunstone Hotel and Penn National go up and down completely randomly.

Pair Corralation between Sunstone Hotel and Penn National

Assuming the 90 days horizon Sunstone Hotel Investors is expected to generate 0.44 times more return on investment than Penn National. However, Sunstone Hotel Investors is 2.25 times less risky than Penn National. It trades about 0.07 of its potential returns per unit of risk. Penn National Gaming is currently generating about 0.0 per unit of risk. If you would invest  849.00  in Sunstone Hotel Investors on October 8, 2024 and sell it today you would earn a total of  291.00  from holding Sunstone Hotel Investors or generate 34.28% return on investment over 90 days.

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

Sunstone Hotel Investors  vs.  Penn National Gaming

Sunstone Hotel Investors

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sunstone Hotel Investors are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Sunstone Hotel reported solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Sunstone Hotel and Penn National

The main advantage of trading using opposite Sunstone Hotel and Penn National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sunstone Hotel 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 Sunstone Hotel Investors 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.

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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.