Correlation Between Brown Forman and Penn National

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

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

Diversification Opportunities for Brown Forman and Penn National

-0.55

Correlation Coefficient

Brown Forman  Penn National

Excellent diversification

The 3 months correlation between Brown and Penn is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Brown Forman 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 Brown Forman 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 Brown Forman 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 Brown Forman i.e., Brown Forman and Penn National go up and down completely randomly.

Pair Corralation between Brown Forman and Penn National

Assuming the 90 days trading horizon Brown Forman is expected to under-perform the Penn National. But the stock apears to be less risky and, when comparing its historical volatility, Brown Forman is 1.33 times less risky than Penn National. The stock trades about -0.03 of its potential returns per unit of risk. The Penn National Gaming is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,672  in Penn National Gaming on September 26, 2024 and sell it today you would earn a total of  109.00  from holding Penn National Gaming or generate 6.52% return on investment over 90 days.

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

Brown Forman  vs.  Penn National Gaming

Brown Forman

Risk-Adjusted Performance

0 of 100

Very Weak

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

Penn National Gaming

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Penn National Gaming are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Penn National may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Brown Forman and Penn National

The main advantage of trading using opposite Brown Forman and Penn National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brown Forman 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 Brown Forman 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.