Correlation Between American Eagle and Steven Madden

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

Diversification Opportunities for American Eagle and Steven Madden

0.91

Correlation Coefficient

American Eagle  Steven Madden

Almost no diversification

The 3 months correlation between American and Steven is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding American Eagle Outfitters and Steven Madden in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steven Madden 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 Steven Madden. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steven Madden has no effect on the direction of American Eagle i.e., American Eagle and Steven Madden go up and down completely randomly.

Pair Corralation between American Eagle and Steven Madden

Considering the 90-day investment horizon American Eagle Outfitters is expected to under-perform the Steven Madden. In addition to that, American Eagle is 2.23 times more volatile than Steven Madden. It trades about -0.06 of its total potential returns per unit of risk. Steven Madden is currently generating about 0.05 per unit of volatility. If you would invest  4,302  in Steven Madden on September 16, 2024 and sell it today you would earn a total of  65.00  from holding Steven Madden or generate 1.51% return on investment over 90 days.

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

American Eagle Outfitters  vs.  Steven Madden

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.

Steven Madden

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Steven Madden has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Steven Madden is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with American Eagle and Steven Madden

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

The idea behind American Eagle Outfitters and Steven Madden 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 Global Correlations module to find global opportunities by holding instruments from different markets.