Correlation Between Penn National and ELECTRONIC ARTS

Can any of the company-specific risk be diversified away by investing in both Penn National and ELECTRONIC ARTS 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 ELECTRONIC ARTS 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 ELECTRONIC ARTS, you can compare the effects of market volatilities on Penn National and ELECTRONIC ARTS 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 ELECTRONIC ARTS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Penn National and ELECTRONIC ARTS.

Diversification Opportunities for Penn National and ELECTRONIC ARTS

0.83

Correlation Coefficient

Penn National  ELECTRONIC ARTS

Very poor diversification

The 3 months correlation between Penn and ELECTRONIC is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and ELECTRONIC ARTS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ELECTRONIC ARTS 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 ELECTRONIC ARTS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ELECTRONIC ARTS has no effect on the direction of Penn National i.e., Penn National and ELECTRONIC ARTS go up and down completely randomly.

Pair Corralation between Penn National and ELECTRONIC ARTS

Assuming the 90 days horizon Penn National is expected to generate 4.2 times less return on investment than ELECTRONIC ARTS. In addition to that, Penn National is 2.78 times more volatile than ELECTRONIC ARTS. It trades about 0.01 of its total potential returns per unit of risk. ELECTRONIC ARTS is currently generating about 0.08 per unit of volatility. If you would invest  12,605  in ELECTRONIC ARTS on September 4, 2024 and sell it today you would earn a total of  3,181  from holding ELECTRONIC ARTS or generate 25.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.6%
Values	Daily Returns

Penn National Gaming  vs.  ELECTRONIC ARTS

Penn National Gaming

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Penn National Gaming are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Penn National reported solid returns over the last few months and may actually be approaching a breakup point.

ELECTRONIC ARTS

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ELECTRONIC ARTS are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, ELECTRONIC ARTS exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Penn National and ELECTRONIC ARTS

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

The idea behind Penn National Gaming and ELECTRONIC ARTS 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.