Correlation Between Tri Pointe and American Eagle

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

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

Diversification Opportunities for Tri Pointe and American Eagle

0.56

Correlation Coefficient

Tri Pointe  American Eagle

Very weak diversification

The 3 months correlation between Tri and American is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Tri Pointe Homes 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 Tri Pointe 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 Tri Pointe Homes 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 Tri Pointe i.e., Tri Pointe and American Eagle go up and down completely randomly.

Pair Corralation between Tri Pointe and American Eagle

Assuming the 90 days horizon Tri Pointe Homes is expected to generate 0.36 times more return on investment than American Eagle. However, Tri Pointe Homes is 2.74 times less risky than American Eagle. It trades about -0.63 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  4,100  in Tri Pointe Homes on October 1, 2024 and sell it today you would lose (600.00) from holding Tri Pointe Homes or give up 14.63% of portfolio value over 90 days.

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

Tri Pointe Homes  vs.  American Eagle Outfitters

Tri Pointe Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tri Pointe Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company 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 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 Tri Pointe and American Eagle

The main advantage of trading using opposite Tri Pointe and American Eagle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tri Pointe 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 Tri Pointe Homes 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..