Correlation Between American Eagle and Charter Communications

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

Diversification Opportunities for American Eagle and Charter Communications

-0.66

Correlation Coefficient

American Eagle  Charter Communications

Excellent diversification

The 3 months correlation between American and Charter is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding American Eagle Outfitters and Charter Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charter 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 Charter Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charter Communications has no effect on the direction of American Eagle i.e., American Eagle and Charter Communications go up and down completely randomly.

Pair Corralation between American Eagle and Charter Communications

Assuming the 90 days trading horizon American Eagle Outfitters is expected to under-perform the Charter Communications. But the stock apears to be less risky and, when comparing its historical volatility, American Eagle Outfitters is 1.08 times less risky than Charter Communications. The stock trades about -0.01 of its potential returns per unit of risk. The Charter Communications is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  30,865  in Charter Communications on September 15, 2024 and sell it today you would earn a total of  5,315  from holding Charter Communications or generate 17.22% 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.  Charter 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 comparatively stable basic indicators, American Eagle is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Charter Communications

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Charter Communications are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Charter Communications unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Eagle and Charter Communications

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

The idea behind American Eagle Outfitters and Charter 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.