Correlation Between American Eagle and Westinghouse Air

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

Diversification Opportunities for American Eagle and Westinghouse Air

-0.68

Correlation Coefficient

American Eagle  Westinghouse Air

Excellent diversification

The 3 months correlation between American and Westinghouse is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding American Eagle Outfitters and Westinghouse Air Brake in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westinghouse Air Brake 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 Westinghouse Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westinghouse Air Brake has no effect on the direction of American Eagle i.e., American Eagle and Westinghouse Air go up and down completely randomly.

Pair Corralation between American Eagle and Westinghouse Air

Considering the 90-day investment horizon American Eagle Outfitters is expected to under-perform the Westinghouse Air. In addition to that, American Eagle is 2.86 times more volatile than Westinghouse Air Brake. It trades about -0.13 of its total potential returns per unit of risk. Westinghouse Air Brake is currently generating about -0.08 per unit of volatility. If you would invest  19,928  in Westinghouse Air Brake on September 25, 2024 and sell it today you would lose (512.00) from holding Westinghouse Air Brake or give up 2.57% of portfolio value over 90 days.

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

American Eagle Outfitters  vs.  Westinghouse Air Brake

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 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 January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Westinghouse Air Brake

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Westinghouse Air Brake are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Westinghouse Air may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with American Eagle and Westinghouse Air

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

The idea behind American Eagle Outfitters and Westinghouse Air Brake 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 Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.