Correlation Between Volkswagen and PENN Entertainment

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

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

Diversification Opportunities for Volkswagen and PENN Entertainment

-0.27

Correlation Coefficient

Volkswagen  PENN Entertainment

Very good diversification

The 3 months correlation between Volkswagen and PENN is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and PENN Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PENN Entertainment and Volkswagen 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 Volkswagen AG are associated (or correlated) with PENN Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PENN Entertainment has no effect on the direction of Volkswagen i.e., Volkswagen and PENN Entertainment go up and down completely randomly.

Pair Corralation between Volkswagen and PENN Entertainment

Assuming the 90 days horizon Volkswagen AG is expected to generate 0.71 times more return on investment than PENN Entertainment. However, Volkswagen AG is 1.4 times less risky than PENN Entertainment. It trades about 0.13 of its potential returns per unit of risk. PENN Entertainment is currently generating about -0.05 per unit of risk. If you would invest  8,885  in Volkswagen AG on December 23, 2024 and sell it today you would earn a total of  1,395  from holding Volkswagen AG or generate 15.7% return on investment over 90 days.

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

Volkswagen AG  vs.  PENN Entertainment

Volkswagen AG

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Volkswagen AG are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Volkswagen reported solid returns over the last few months and may actually be approaching a breakup point.

PENN Entertainment

Risk-Adjusted Performance

Very Weak

Over the last 90 days PENN Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Volkswagen and PENN Entertainment

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

The idea behind Volkswagen AG and PENN Entertainment 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.