Correlation Between Penn National and Dropbox

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

Diversification Opportunities for Penn National and Dropbox

-0.48

Correlation Coefficient

Penn National  Dropbox

Very good diversification

The 3 months correlation between Penn and Dropbox is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and Dropbox in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dropbox 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 Dropbox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dropbox has no effect on the direction of Penn National i.e., Penn National and Dropbox go up and down completely randomly.

Pair Corralation between Penn National and Dropbox

Assuming the 90 days horizon Penn National Gaming is expected to generate 1.94 times more return on investment than Dropbox. However, Penn National is 1.94 times more volatile than Dropbox. It trades about 0.1 of its potential returns per unit of risk. Dropbox is currently generating about -0.04 per unit of risk. If you would invest  1,339  in Penn National Gaming on April 23, 2025 and sell it today you would earn a total of  223.00  from holding Penn National Gaming or generate 16.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Penn National Gaming  vs.  Dropbox

Penn National Gaming

Risk-Adjusted Performance

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

Dropbox

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dropbox has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Dropbox is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Penn National and Dropbox

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

The idea behind Penn National Gaming and Dropbox 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.