Correlation Between Expedia and Penn National

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

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

Diversification Opportunities for Expedia and Penn National

0.74

Correlation Coefficient

Expedia  Penn National

Poor diversification

The 3 months correlation between Expedia and Penn is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Expedia Group 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 Expedia 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 Expedia Group 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 Expedia i.e., Expedia and Penn National go up and down completely randomly.

Pair Corralation between Expedia and Penn National

Given the investment horizon of 90 days Expedia Group is expected to generate 0.63 times more return on investment than Penn National. However, Expedia Group is 1.59 times less risky than Penn National. It trades about 0.44 of its potential returns per unit of risk. Penn National Gaming is currently generating about 0.21 per unit of risk. If you would invest  15,940  in Expedia Group on September 2, 2024 and sell it today you would earn a total of  2,522  from holding Expedia Group or generate 15.82% return on investment over 90 days.

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

Expedia Group  vs.  Penn National Gaming

Expedia Group

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Expedia Group are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Expedia exhibited solid returns over the last few months and may actually be approaching a breakup point.

Penn National Gaming

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Penn National Gaming are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Penn National displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Expedia and Penn National

The main advantage of trading using opposite Expedia and Penn National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Expedia 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 Expedia Group 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.