Correlation Between American Eagle and FuelCell Energy

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

Diversification Opportunities for American Eagle and FuelCell Energy

0.14

Correlation Coefficient

American Eagle  FuelCell Energy

Average diversification

The 3 months correlation between American and FuelCell is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding American Eagle Outfitters and FuelCell Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FuelCell Energy 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 FuelCell Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FuelCell Energy has no effect on the direction of American Eagle i.e., American Eagle and FuelCell Energy go up and down completely randomly.

Pair Corralation between American Eagle and FuelCell Energy

Assuming the 90 days trading horizon American Eagle Outfitters is expected to under-perform the FuelCell Energy. But the stock apears to be less risky and, when comparing its historical volatility, American Eagle Outfitters is 3.43 times less risky than FuelCell Energy. The stock trades about -0.11 of its potential returns per unit of risk. The FuelCell Energy is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,035  in FuelCell Energy on September 29, 2024 and sell it today you would earn a total of  57.00  from holding FuelCell Energy or generate 5.51% return on investment over 90 days.

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

American Eagle Outfitters  vs.  FuelCell Energy

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 January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

FuelCell Energy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in FuelCell Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, FuelCell Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Eagle and FuelCell Energy

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

The idea behind American Eagle Outfitters and FuelCell Energy 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.