Correlation Between American Eagle and Best Buy
Can any of the company-specific risk be diversified away by investing in both American Eagle and Best Buy 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 American Eagle and Best Buy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Eagle Outfitters and Best Buy Co, you can compare the effects of market volatilities on American Eagle and Best Buy 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 American Eagle with a short position of Best Buy. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Eagle and Best Buy.
Diversification Opportunities for American Eagle and Best Buy
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Best is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding American Eagle Outfitters and Best Buy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Best Buy and American Eagle 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 American Eagle Outfitters are associated (or correlated) with Best Buy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Best Buy has no effect on the direction of American Eagle i.e., American Eagle and Best Buy go up and down completely randomly.
Pair Corralation between American Eagle and Best Buy
Considering the 90-day investment horizon American Eagle Outfitters is expected to generate 1.3 times more return on investment than Best Buy. However, American Eagle is 1.3 times more volatile than Best Buy Co. It trades about 0.03 of its potential returns per unit of risk. Best Buy Co is currently generating about 0.03 per unit of risk. If you would invest 1,550 in American Eagle Outfitters on September 12, 2024 and sell it today you would earn a total of 215.00 from holding American Eagle Outfitters or generate 13.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Eagle Outfitters vs. Best Buy Co
Performance |
| Timeline |
| American Eagle Outfitters |
| Best Buy |
American Eagle and Best Buy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Eagle and Best Buy
The main advantage of trading using opposite American Eagle and Best Buy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Eagle position performs unexpectedly, Best Buy 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 Best Buy will offset losses from the drop in Best Buy's long position.| American Eagle vs. Foot Locker | American Eagle vs. Lands End | American Eagle vs. Duluth Holdings | American Eagle vs. Destination XL Group |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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