Correlation Between American Eagle and Bank of America

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

Diversification Opportunities for American Eagle and Bank of America

0.42

Correlation Coefficient

American Eagle  Bank of America

Very weak diversification

The 3 months correlation between American and Bank is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding American Eagle Outfitters and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications 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 Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of American Eagle i.e., American Eagle and Bank of America go up and down completely randomly.

Pair Corralation between American Eagle and Bank of America

Assuming the 90 days trading horizon American Eagle Outfitters is expected to under-perform the Bank of America. In addition to that, American Eagle is 2.58 times more volatile than Verizon Communications. It trades about -0.08 of its total potential returns per unit of risk. Verizon Communications is currently generating about -0.02 per unit of volatility. If you would invest  3,825  in Verizon Communications on October 23, 2024 and sell it today you would lose (62.00) from holding Verizon Communications or give up 1.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

American Eagle Outfitters  vs.  Verizon Communications

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 uncertain performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Verizon Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Verizon Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Bank of America is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with American Eagle and Bank of America

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

The idea behind American Eagle Outfitters and Verizon Communications 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.