Correlation Between Winmark and American Eagle

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

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

Diversification Opportunities for Winmark and American Eagle

-0.45

Correlation Coefficient

Winmark  American Eagle

Very good diversification

The 3 months correlation between Winmark and American is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Winmark 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 Winmark 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 Winmark 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 Winmark i.e., Winmark and American Eagle go up and down completely randomly.

Pair Corralation between Winmark and American Eagle

Given the investment horizon of 90 days Winmark is expected to generate 0.72 times more return on investment than American Eagle. However, Winmark is 1.4 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 0.02 per unit of risk. If you would invest  25,650  in Winmark on October 19, 2024 and sell it today you would earn a total of  13,209  from holding Winmark or generate 51.5% return on investment over 90 days.

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

Winmark  vs.  American Eagle Outfitters

Winmark

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Winmark are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Winmark is not utilizing all of its potentials. The current stock price disturbance, 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 weak performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Winmark and American Eagle

The main advantage of trading using opposite Winmark and American Eagle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Winmark 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 Winmark 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.