Correlation Between Boot Barn and American Eagle

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

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

Diversification Opportunities for Boot Barn and American Eagle

0.96

Correlation Coefficient

Boot Barn  American Eagle

Almost no diversification

The 3 months correlation between Boot and American is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Boot Barn Holdings 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 Boot Barn 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 Boot Barn Holdings 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 Boot Barn i.e., Boot Barn and American Eagle go up and down completely randomly.

Pair Corralation between Boot Barn and American Eagle

Given the investment horizon of 90 days Boot Barn Holdings is expected to under-perform the American Eagle. In addition to that, Boot Barn is 1.06 times more volatile than American Eagle Outfitters. It trades about -0.17 of its total potential returns per unit of risk. American Eagle Outfitters is currently generating about -0.16 per unit of volatility. If you would invest  1,627  in American Eagle Outfitters on December 28, 2024 and sell it today you would lose (429.00) from holding American Eagle Outfitters or give up 26.37% of portfolio value over 90 days.

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

Boot Barn Holdings  vs.  American Eagle Outfitters

Boot Barn Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Boot Barn Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

American Eagle Outfitters

Risk-Adjusted Performance

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 April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Boot Barn and American Eagle

The main advantage of trading using opposite Boot Barn and American Eagle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Boot Barn 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 Boot Barn Holdings 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.