Correlation Between Charter Communications and American Eagle

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

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

Diversification Opportunities for Charter Communications and American Eagle

0.03

Correlation Coefficient

Charter Communications  American Eagle

Significant diversification

The 3 months correlation between Charter and American is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Charter Communications 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 Charter Communications 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 Charter Communications 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 Charter Communications i.e., Charter Communications and American Eagle go up and down completely randomly.

Pair Corralation between Charter Communications and American Eagle

Assuming the 90 days trading horizon Charter Communications is expected to generate 0.58 times more return on investment than American Eagle. However, Charter Communications is 1.72 times less risky than American Eagle. It trades about 0.07 of its potential returns per unit of risk. American Eagle Outfitters is currently generating about -0.18 per unit of risk. If you would invest  33,200  in Charter Communications on December 29, 2024 and sell it today you would earn a total of  2,330  from holding Charter Communications or generate 7.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Charter Communications  vs.  American Eagle Outfitters

Charter Communications

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Charter Communications are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Charter Communications may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 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.

Pair Trading with Charter Communications and American Eagle

The main advantage of trading using opposite Charter Communications and American Eagle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Charter Communications 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 Charter Communications 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.