Correlation Between Penn National and XLMedia PLC

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

Diversification Opportunities for Penn National and XLMedia PLC

0.79

Correlation Coefficient

Penn National  XLMedia PLC

Poor diversification

The 3 months correlation between Penn and XLMedia is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and XLMedia PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XLMedia PLC 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 XLMedia PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XLMedia PLC has no effect on the direction of Penn National i.e., Penn National and XLMedia PLC go up and down completely randomly.

Pair Corralation between Penn National and XLMedia PLC

Assuming the 90 days horizon Penn National is expected to generate 1.33 times less return on investment than XLMedia PLC. But when comparing it to its historical volatility, Penn National Gaming is 1.19 times less risky than XLMedia PLC. It trades about 0.12 of its potential returns per unit of risk. XLMedia PLC is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  11.00  in XLMedia PLC on September 12, 2024 and sell it today you would earn a total of  3.00  from holding XLMedia PLC or generate 27.27% 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.  XLMedia PLC

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. Despite nearly fragile basic indicators, Penn National reported solid returns over the last few months and may actually be approaching a breakup point.

XLMedia PLC

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Penn National and XLMedia PLC

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

The idea behind Penn National Gaming and XLMedia PLC 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.