Correlation Between Carsales and PENN Entertainment

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

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

Diversification Opportunities for Carsales and PENN Entertainment

0.79

Correlation Coefficient

Carsales  PENN Entertainment

Poor diversification

The 3 months correlation between Carsales and PENN is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom and PENN Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PENN Entertainment and Carsales 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 CarsalesCom 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 Carsales i.e., Carsales and PENN Entertainment go up and down completely randomly.

Pair Corralation between Carsales and PENN Entertainment

Assuming the 90 days horizon CarsalesCom is expected to under-perform the PENN Entertainment. But the stock apears to be less risky and, when comparing its historical volatility, CarsalesCom is 2.02 times less risky than PENN Entertainment. The stock trades about -0.22 of its potential returns per unit of risk. The PENN Entertainment is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,777  in PENN Entertainment on October 11, 2024 and sell it today you would earn a total of  33.00  from holding PENN Entertainment or generate 1.86% return on investment over 90 days.

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

CarsalesCom  vs.  PENN Entertainment

CarsalesCom

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CarsalesCom has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Carsales is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

PENN Entertainment

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PENN Entertainment are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, PENN Entertainment may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Carsales and PENN Entertainment

The main advantage of trading using opposite Carsales and PENN Entertainment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carsales 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 CarsalesCom 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.