Correlation Between PENN NATL and Food Life

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

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

Diversification Opportunities for PENN NATL and Food Life

0.68

Correlation Coefficient

PENN NATL  Food Life

Poor diversification

The 3 months correlation between PENN and Food is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding PENN NATL GAMING and Food Life Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Food Life Companies and PENN NATL 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 PENN NATL GAMING are associated (or correlated) with Food Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Food Life Companies has no effect on the direction of PENN NATL i.e., PENN NATL and Food Life go up and down completely randomly.

Pair Corralation between PENN NATL and Food Life

Assuming the 90 days trading horizon PENN NATL GAMING is expected to under-perform the Food Life. In addition to that, PENN NATL is 1.72 times more volatile than Food Life Companies. It trades about -0.1 of its total potential returns per unit of risk. Food Life Companies is currently generating about 0.31 per unit of volatility. If you would invest  1,870  in Food Life Companies on September 21, 2024 and sell it today you would earn a total of  230.00  from holding Food Life Companies or generate 12.3% return on investment over 90 days.

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

PENN NATL GAMING  vs.  Food Life Companies

PENN NATL GAMING

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days PENN NATL GAMING has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, PENN NATL is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Food Life Companies

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Food Life Companies are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Food Life reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PENN NATL and Food Life

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

The idea behind PENN NATL GAMING and Food Life Companies 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.