Correlation Between Penn National and HP

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

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

Diversification Opportunities for Penn National and HP

0.64

Correlation Coefficient

Penn National  HP

Poor diversification

The 3 months correlation between Penn and HP is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and HP Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HP Inc and Penn National 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 National Gaming are associated (or correlated) with HP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HP Inc has no effect on the direction of Penn National i.e., Penn National and HP go up and down completely randomly.

Pair Corralation between Penn National and HP

Assuming the 90 days horizon Penn National Gaming is expected to generate 1.22 times more return on investment than HP. However, Penn National is 1.22 times more volatile than HP Inc. It trades about 0.09 of its potential returns per unit of risk. HP Inc is currently generating about 0.11 per unit of risk. If you would invest  1,637  in Penn National Gaming on September 13, 2024 and sell it today you would earn a total of  234.00  from holding Penn National Gaming or generate 14.29% return on investment over 90 days.

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

Penn National Gaming  vs.  HP Inc

Penn National Gaming

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Penn National Gaming are ranked lower than 7 (%) 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.

HP Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HP Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, HP reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Penn National and HP

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

The idea behind Penn National Gaming and HP Inc 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.