Correlation Between Major Drilling and American Eagle
Can any of the company-specific risk be diversified away by investing in both Major Drilling 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 Major Drilling and American Eagle into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Major Drilling Group and American Eagle Outfitters, you can compare the effects of market volatilities on Major Drilling 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 Major Drilling with a short position of American Eagle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Major Drilling and American Eagle.
Diversification Opportunities for Major Drilling and American Eagle
-0.06 | Correlation Coefficient |
Good diversification
The 3 months correlation between Major and American is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group 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 Major Drilling 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 Major Drilling Group 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 Major Drilling i.e., Major Drilling and American Eagle go up and down completely randomly.
Pair Corralation between Major Drilling and American Eagle
Assuming the 90 days horizon Major Drilling is expected to generate 2.7 times less return on investment than American Eagle. But when comparing it to its historical volatility, Major Drilling Group is 1.04 times less risky than American Eagle. It trades about 0.01 of its potential returns per unit of risk. American Eagle Outfitters is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 1,861 in American Eagle Outfitters on September 4, 2024 and sell it today you would earn a total of 39.00 from holding American Eagle Outfitters or generate 2.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.6% |
| Values | Daily Returns |
Major Drilling Group vs. American Eagle Outfitters
Performance |
| Timeline |
| Major Drilling Group |
| American Eagle Outfitters |
Major Drilling and American Eagle Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Major Drilling and American Eagle
The main advantage of trading using opposite Major Drilling and American Eagle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Major Drilling 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.| Major Drilling vs. Direct Line Insurance | Major Drilling vs. National Health Investors | Major Drilling vs. REVO INSURANCE SPA | Major Drilling vs. SBI Insurance Group |
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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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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