Correlation Between American Eagle and Shoe Carnival

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

Diversification Opportunities for American Eagle and Shoe Carnival

0.5

Correlation Coefficient

American Eagle  Shoe Carnival

Very weak diversification

The 3 months correlation between American and Shoe is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding American Eagle Outfitters and Shoe Carnival in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shoe Carnival 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 Shoe Carnival. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shoe Carnival has no effect on the direction of American Eagle i.e., American Eagle and Shoe Carnival go up and down completely randomly.

Pair Corralation between American Eagle and Shoe Carnival

Considering the 90-day investment horizon American Eagle Outfitters is expected to generate 1.29 times more return on investment than Shoe Carnival. However, American Eagle is 1.29 times more volatile than Shoe Carnival. It trades about -0.18 of its potential returns per unit of risk. Shoe Carnival is currently generating about -0.3 per unit of risk. If you would invest  1,627  in American Eagle Outfitters on December 28, 2024 and sell it today you would lose (485.00) from holding American Eagle Outfitters or give up 29.81% of portfolio value over 90 days.

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

American Eagle Outfitters  vs.  Shoe Carnival

American Eagle Outfitters

Risk-Adjusted Performance

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 unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Shoe Carnival

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shoe Carnival has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with American Eagle and Shoe Carnival

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

The idea behind American Eagle Outfitters and Shoe Carnival 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.