Correlation Between Universal Entertainment and American Eagle

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

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

Diversification Opportunities for Universal Entertainment and American Eagle

0.76

Correlation Coefficient

Universal Entertainment  American Eagle

Poor diversification

The 3 months correlation between Universal and American is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Universal Entertainment 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 Universal Entertainment 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 Universal Entertainment 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 Universal Entertainment i.e., Universal Entertainment and American Eagle go up and down completely randomly.

Pair Corralation between Universal Entertainment and American Eagle

Assuming the 90 days trading horizon Universal Entertainment is expected to generate 0.63 times more return on investment than American Eagle. However, Universal Entertainment is 1.59 times less risky than American Eagle. It trades about -0.18 of its potential returns per unit of risk. American Eagle Outfitters is currently generating about -0.25 per unit of risk. If you would invest  645.00  in Universal Entertainment on October 1, 2024 and sell it today you would lose (50.00) from holding Universal Entertainment or give up 7.75% of portfolio value over 90 days.

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

Universal Entertainment  vs.  American Eagle Outfitters

Universal Entertainment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universal Entertainment 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 January 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

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 fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Universal Entertainment and American Eagle

The main advantage of trading using opposite Universal Entertainment and American Eagle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal Entertainment 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 Universal Entertainment 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.