Correlation Between Fast Retailing and American Eagle

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

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

Diversification Opportunities for Fast Retailing and American Eagle

0.13

Correlation Coefficient

Fast Retailing  American Eagle

Average diversification

The 3 months correlation between Fast and American is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co 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 Fast Retailing 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 Fast Retailing Co 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 Fast Retailing i.e., Fast Retailing and American Eagle go up and down completely randomly.

Pair Corralation between Fast Retailing and American Eagle

Assuming the 90 days horizon Fast Retailing Co is expected to generate 0.98 times more return on investment than American Eagle. However, Fast Retailing Co is 1.02 times less risky than American Eagle. It trades about 0.09 of its potential returns per unit of risk. American Eagle Outfitters is currently generating about -0.04 per unit of risk. If you would invest  25,970  in Fast Retailing Co on September 26, 2024 and sell it today you would earn a total of  7,290  from holding Fast Retailing Co or generate 28.07% return on investment over 90 days.

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

Fast Retailing Co  vs.  American Eagle Outfitters

Fast Retailing

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fast Retailing Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Fast Retailing may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 Fast Retailing and American Eagle

The main advantage of trading using opposite Fast Retailing and American Eagle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fast Retailing 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 Fast Retailing Co 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.

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.