Correlation Between American Eagle and Brown Brown

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

Diversification Opportunities for American Eagle and Brown Brown

-0.88

Correlation Coefficient

American Eagle  Brown Brown

Pay attention - limited upside

The 3 months correlation between American and Brown is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding American Eagle Outfitters and Brown Brown in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brown Brown 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 Brown Brown. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brown Brown has no effect on the direction of American Eagle i.e., American Eagle and Brown Brown go up and down completely randomly.

Pair Corralation between American Eagle and Brown Brown

Assuming the 90 days trading horizon American Eagle Outfitters is expected to under-perform the Brown Brown. In addition to that, American Eagle is 2.16 times more volatile than Brown Brown. It trades about -0.17 of its total potential returns per unit of risk. Brown Brown is currently generating about 0.15 per unit of volatility. If you would invest  9,708  in Brown Brown on December 19, 2024 and sell it today you would earn a total of  1,262  from holding Brown Brown or generate 13.0% return on investment over 90 days.

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

American Eagle Outfitters  vs.  Brown Brown

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

Brown Brown

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Brown Brown are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Brown Brown reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Eagle and Brown Brown

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

The idea behind American Eagle Outfitters and Brown Brown 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.