Correlation Between Chuangs China and PENN Entertainment

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

By analyzing existing cross correlation between Chuangs China Investments and PENN Entertainment, you can compare the effects of market volatilities on Chuangs China and PENN Entertainment 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 Chuangs China with a short position of PENN Entertainment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chuangs China and PENN Entertainment.

Diversification Opportunities for Chuangs China and PENN Entertainment

0.76

Correlation Coefficient

Chuangs China  PENN Entertainment

Poor diversification

The 3 months correlation between Chuangs and PENN is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Chuangs China Investments and PENN Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PENN Entertainment and Chuangs China 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 Chuangs China Investments are associated (or correlated) with PENN Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PENN Entertainment has no effect on the direction of Chuangs China i.e., Chuangs China and PENN Entertainment go up and down completely randomly.

Pair Corralation between Chuangs China and PENN Entertainment

Assuming the 90 days horizon Chuangs China Investments is expected to generate 1.23 times more return on investment than PENN Entertainment. However, Chuangs China is 1.23 times more volatile than PENN Entertainment. It trades about 0.12 of its potential returns per unit of risk. PENN Entertainment is currently generating about 0.11 per unit of risk. If you would invest  1.00  in Chuangs China Investments on April 25, 2025 and sell it today you would earn a total of  0.25  from holding Chuangs China Investments or generate 25.0% return on investment over 90 days.

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

Chuangs China Investments  vs.  PENN Entertainment

Chuangs China Investments

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chuangs China Investments are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Chuangs China reported solid returns over the last few months and may actually be approaching a breakup point.

PENN Entertainment

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PENN Entertainment are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, PENN Entertainment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chuangs China and PENN Entertainment

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

The idea behind Chuangs China Investments and PENN Entertainment 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.