Correlation Between American Eagle and Ecopetrol

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

Diversification Opportunities for American Eagle and Ecopetrol

0.3

Correlation Coefficient

American Eagle  Ecopetrol

Weak diversification

The 3 months correlation between American and Ecopetrol is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding American Eagle Outfitters and Ecopetrol SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecopetrol SA 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 Ecopetrol. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ecopetrol SA has no effect on the direction of American Eagle i.e., American Eagle and Ecopetrol go up and down completely randomly.

Pair Corralation between American Eagle and Ecopetrol

Assuming the 90 days trading horizon American Eagle Outfitters is expected to generate 1.22 times more return on investment than Ecopetrol. However, American Eagle is 1.22 times more volatile than Ecopetrol SA. It trades about 0.03 of its potential returns per unit of risk. Ecopetrol SA is currently generating about 0.01 per unit of risk. If you would invest  1,307  in American Eagle Outfitters on October 11, 2024 and sell it today you would earn a total of  303.00  from holding American Eagle Outfitters or generate 23.18% return on investment over 90 days.

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

American Eagle Outfitters  vs.  Ecopetrol SA

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 fragile performance in the last few months, the Stock's basic 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.

Ecopetrol SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ecopetrol SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, Ecopetrol is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with American Eagle and Ecopetrol

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

The idea behind American Eagle Outfitters and Ecopetrol SA 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.