Correlation Between Steven Madden and American Eagle

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

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

Diversification Opportunities for Steven Madden and American Eagle

0.91

Correlation Coefficient

Steven Madden  American Eagle

Almost no diversification

The 3 months correlation between Steven and American is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Steven Madden 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 Steven Madden 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 Steven Madden 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 Steven Madden i.e., Steven Madden and American Eagle go up and down completely randomly.

Pair Corralation between Steven Madden and American Eagle

Given the investment horizon of 90 days Steven Madden is expected to generate 0.45 times more return on investment than American Eagle. However, Steven Madden is 2.23 times less risky than American Eagle. It trades about 0.05 of its potential returns per unit of risk. American Eagle Outfitters is currently generating about -0.06 per unit of risk. If you would invest  4,302  in Steven Madden on September 16, 2024 and sell it today you would earn a total of  65.00  from holding Steven Madden or generate 1.51% return on investment over 90 days.

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

Steven Madden  vs.  American Eagle Outfitters

Steven Madden

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Steven Madden has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Steven Madden is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the 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 latest inconsistent performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Steven Madden and American Eagle

The main advantage of trading using opposite Steven Madden and American Eagle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steven Madden 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 Steven Madden 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.