Correlation Between Broadcom and American Eagle
Can any of the company-specific risk be diversified away by investing in both Broadcom 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 Broadcom and American Eagle into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Broadcom and American Eagle Outfitters, you can compare the effects of market volatilities on Broadcom 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 Broadcom with a short position of American Eagle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Broadcom and American Eagle.
Diversification Opportunities for Broadcom and American Eagle
0.35 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Broadcom and American is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Broadcom 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 Broadcom 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 Broadcom 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 Broadcom i.e., Broadcom and American Eagle go up and down completely randomly.
Pair Corralation between Broadcom and American Eagle
Assuming the 90 days trading horizon Broadcom is expected to generate 0.84 times more return on investment than American Eagle. However, Broadcom is 1.19 times less risky than American Eagle. It trades about 0.11 of its potential returns per unit of risk. American Eagle Outfitters is currently generating about 0.03 per unit of risk. If you would invest 5,086 in Broadcom on September 3, 2024 and sell it today you would earn a total of 10,812 from holding Broadcom or generate 212.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Broadcom vs. American Eagle Outfitters
Performance |
| Timeline |
| Broadcom |
| American Eagle Outfitters |
Broadcom and American Eagle Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Broadcom and American Eagle
The main advantage of trading using opposite Broadcom and American Eagle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Broadcom 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 Broadcom 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.| American Eagle vs. Apple Inc | American Eagle vs. Apple Inc | American Eagle vs. Apple Inc | American Eagle vs. Apple Inc |
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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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