Correlation Between American Eagle and Rheinmetall

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

Diversification Opportunities for American Eagle and Rheinmetall

-0.67

Correlation Coefficient

American Eagle  Rheinmetall

Excellent diversification

The 3 months correlation between American and Rheinmetall is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding American Eagle Outfitters and Rheinmetall AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rheinmetall AG 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 Rheinmetall. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rheinmetall AG has no effect on the direction of American Eagle i.e., American Eagle and Rheinmetall go up and down completely randomly.

Pair Corralation between American Eagle and Rheinmetall

Assuming the 90 days trading horizon American Eagle Outfitters is expected to under-perform the Rheinmetall. In addition to that, American Eagle is 1.53 times more volatile than Rheinmetall AG. It trades about -0.04 of its total potential returns per unit of risk. Rheinmetall AG is currently generating about 0.33 per unit of volatility. If you would invest  48,870  in Rheinmetall AG on October 25, 2024 and sell it today you would earn a total of  23,050  from holding Rheinmetall AG or generate 47.17% return on investment over 90 days.

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

American Eagle Outfitters  vs.  Rheinmetall AG

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 uncertain performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Rheinmetall AG

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Rheinmetall AG are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile primary indicators, Rheinmetall exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Eagle and Rheinmetall

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

The idea behind American Eagle Outfitters and Rheinmetall AG 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.