Correlation Between Webster Financial and PENN NATL

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Can any of the company-specific risk be diversified away by investing in both Webster Financial and PENN NATL 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 Webster Financial and PENN NATL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Webster Financial and PENN NATL GAMING, you can compare the effects of market volatilities on Webster Financial and PENN NATL 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 Webster Financial with a short position of PENN NATL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Webster Financial and PENN NATL.

Diversification Opportunities for Webster Financial and PENN NATL

WebsterPENNDiversified AwayWebsterPENNDiversified Away100%
0.71
  Correlation Coefficient

Poor diversification

The 3 months correlation between Webster and PENN is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Webster Financial and PENN NATL GAMING in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PENN NATL GAMING and Webster Financial 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 Webster Financial are associated (or correlated) with PENN NATL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PENN NATL GAMING has no effect on the direction of Webster Financial i.e., Webster Financial and PENN NATL go up and down completely randomly.

Pair Corralation between Webster Financial and PENN NATL

Assuming the 90 days horizon Webster Financial is expected to generate 2.72 times less return on investment than PENN NATL. But when comparing it to its historical volatility, Webster Financial is 1.45 times less risky than PENN NATL. It trades about 0.1 of its potential returns per unit of risk. PENN NATL GAMING is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,778  in PENN NATL GAMING on November 22, 2024 and sell it today you would earn a total of  331.00  from holding PENN NATL GAMING or generate 18.62% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Webster Financial  vs.  PENN NATL GAMING

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -10-505
JavaScript chart by amCharts 3.21.15WED PN1
       Timeline  
Webster Financial 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Webster Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Webster Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb5253545556575859
PENN NATL GAMING 

Risk-Adjusted Performance

Modest

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in PENN NATL GAMING are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, PENN NATL may actually be approaching a critical reversion point that can send shares even higher in March 2025.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb17.51818.51919.52020.52121.5

Webster Financial and PENN NATL Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-5.6-4.2-2.79-1.380.01.372.794.215.637.05 0.020.040.060.080.100.120.14
JavaScript chart by amCharts 3.21.15WED PN1
       Returns  

Pair Trading with Webster Financial and PENN NATL

The main advantage of trading using opposite Webster Financial and PENN NATL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Webster Financial position performs unexpectedly, PENN NATL 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 NATL will offset losses from the drop in PENN NATL's long position.
The idea behind Webster Financial and PENN NATL GAMING 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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