Correlation Between Penn National and Childrens Place

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

Diversification Opportunities for Penn National and Childrens Place

0.6

Correlation Coefficient

Penn National  Childrens Place

Poor diversification

The 3 months correlation between Penn and Childrens is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and Childrens Place in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Childrens Place 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 Childrens Place. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Childrens Place has no effect on the direction of Penn National i.e., Penn National and Childrens Place go up and down completely randomly.

Pair Corralation between Penn National and Childrens Place

Given the investment horizon of 90 days Penn National Gaming is expected to generate 0.4 times more return on investment than Childrens Place. However, Penn National Gaming is 2.51 times less risky than Childrens Place. It trades about -0.13 of its potential returns per unit of risk. Childrens Place is currently generating about -0.34 per unit of risk. If you would invest  1,783  in Penn National Gaming on January 20, 2024 and sell it today you would lose (129.00) from holding Penn National Gaming or give up 7.23% of portfolio value over 90 days.

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

Penn National Gaming  vs.  Childrens Place

Penn National Gaming

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Penn National Gaming has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in May 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Childrens Place

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Childrens Place has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Penn National and Childrens Place

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

The idea behind Penn National Gaming and Childrens Place 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.