Correlation Between AutoNation and American Eagle

Can any of the company-specific risk be diversified away by investing in both AutoNation and American Eagle 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 AutoNation and American Eagle into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AutoNation and American Eagle Outfitters, you can compare the effects of market volatilities on AutoNation and American Eagle 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 AutoNation with a short position of American Eagle. Check out your portfolio center. Please also check ongoing floating volatility patterns of AutoNation and American Eagle.

Diversification Opportunities for AutoNation and American Eagle

0.02

Correlation Coefficient

AutoNation  American Eagle

Significant diversification

The 3 months correlation between AutoNation and American is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding AutoNation and American Eagle Outfitters in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Eagle Outfitters and AutoNation 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 AutoNation are associated (or correlated) with American Eagle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Eagle Outfitters has no effect on the direction of AutoNation i.e., AutoNation and American Eagle go up and down completely randomly.

Pair Corralation between AutoNation and American Eagle

Allowing for the 90-day total investment horizon AutoNation is expected to generate 0.83 times more return on investment than American Eagle. However, AutoNation is 1.2 times less risky than American Eagle. It trades about 0.05 of its potential returns per unit of risk. American Eagle Outfitters is currently generating about 0.03 per unit of risk. If you would invest  10,722  in AutoNation on September 24, 2024 and sell it today you would earn a total of  6,297  from holding AutoNation or generate 58.73% return on investment over 90 days.

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

AutoNation  vs.  American Eagle Outfitters

AutoNation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AutoNation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, AutoNation is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

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 unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with AutoNation and American Eagle

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

The idea behind AutoNation and American Eagle Outfitters 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.