Correlation Between American Eagle and Gap,

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

By analyzing existing cross correlation between American Eagle Outfitters and The Gap,, you can compare the effects of market volatilities on American Eagle and Gap, 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 American Eagle with a short position of Gap,. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Eagle and Gap,.

Diversification Opportunities for American Eagle and Gap,

-0.45

Correlation Coefficient

American Eagle  Gap,

Very good diversification

The 3 months correlation between American and Gap, is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding American Eagle Outfitters and The Gap, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gap, and American Eagle 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 American Eagle Outfitters are associated (or correlated) with Gap,. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gap, has no effect on the direction of American Eagle i.e., American Eagle and Gap, go up and down completely randomly.

Pair Corralation between American Eagle and Gap,

Considering the 90-day investment horizon American Eagle Outfitters is expected to under-perform the Gap,. In addition to that, American Eagle is 1.02 times more volatile than The Gap,. It trades about -0.07 of its total potential returns per unit of risk. The Gap, is currently generating about 0.14 per unit of volatility. If you would invest  2,001  in The Gap, on September 18, 2024 and sell it today you would earn a total of  487.00  from holding The Gap, or generate 24.34% return on investment over 90 days.

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

American Eagle Outfitters  vs.  The Gap,

American Eagle Outfitters

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Eagle Outfitters has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Gap,

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with American Eagle and Gap,

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

The idea behind American Eagle Outfitters and The Gap, 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.