Correlation Between Penn National and American Eagle

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

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

Diversification Opportunities for Penn National and American Eagle

-0.63

Correlation Coefficient

Penn National  American Eagle

Excellent diversification

The 3 months correlation between Penn and American is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming 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 Penn National 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 Penn National Gaming 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 Penn National i.e., Penn National and American Eagle go up and down completely randomly.

Pair Corralation between Penn National and American Eagle

Assuming the 90 days horizon Penn National Gaming is expected to under-perform the American Eagle. But the stock apears to be less risky and, when comparing its historical volatility, Penn National Gaming is 1.32 times less risky than American Eagle. The stock trades about -0.04 of its potential returns per unit of risk. The American Eagle Outfitters is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,680  in American Eagle Outfitters on September 20, 2024 and sell it today you would lose (50.00) from holding American Eagle Outfitters or give up 2.98% of portfolio value over 90 days.

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

Penn National Gaming  vs.  American Eagle Outfitters

Penn National Gaming

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Penn National Gaming are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Penn National is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Penn National and American Eagle

The main advantage of trading using opposite Penn National and American Eagle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Penn National 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 Penn National Gaming 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.