Correlation Between BJs Restaurants and Penn National

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

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

Diversification Opportunities for BJs Restaurants and Penn National

0.58

Correlation Coefficient

BJs Restaurants  Penn National

Very weak diversification

The 3 months correlation between BJs and Penn is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding BJs Restaurants 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 BJs Restaurants 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 BJs Restaurants 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 BJs Restaurants i.e., BJs Restaurants and Penn National go up and down completely randomly.

Pair Corralation between BJs Restaurants and Penn National

Assuming the 90 days trading horizon BJs Restaurants is expected to generate 3.79 times less return on investment than Penn National. But when comparing it to its historical volatility, BJs Restaurants is 1.25 times less risky than Penn National. It trades about 0.02 of its potential returns per unit of risk. Penn National Gaming is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,724  in Penn National Gaming on October 23, 2024 and sell it today you would earn a total of  205.00  from holding Penn National Gaming or generate 11.89% return on investment over 90 days.

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

BJs Restaurants  vs.  Penn National Gaming

BJs Restaurants

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BJs Restaurants are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, BJs Restaurants is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Penn National Gaming

Risk-Adjusted Performance

5 of 100

OK

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 BJs Restaurants and Penn National

The main advantage of trading using opposite BJs Restaurants and Penn National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BJs Restaurants 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 BJs Restaurants 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.