Correlation Between American Eagle and Sonic Automotive
Can any of the company-specific risk be diversified away by investing in both American Eagle and Sonic Automotive 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 Sonic Automotive 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 Sonic Automotive, you can compare the effects of market volatilities on American Eagle and Sonic Automotive 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 Sonic Automotive. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Eagle and Sonic Automotive.
Diversification Opportunities for American Eagle and Sonic Automotive
-0.5 | Correlation Coefficient |
Very good diversification
The 3 months correlation between American and Sonic is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding American Eagle Outfitters and Sonic Automotive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonic Automotive 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 Sonic Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonic Automotive has no effect on the direction of American Eagle i.e., American Eagle and Sonic Automotive go up and down completely randomly.
Pair Corralation between American Eagle and Sonic Automotive
Considering the 90-day investment horizon American Eagle Outfitters is expected to under-perform the Sonic Automotive. But the stock apears to be less risky and, when comparing its historical volatility, American Eagle Outfitters is 1.31 times less risky than Sonic Automotive. The stock trades about -0.12 of its potential returns per unit of risk. The Sonic Automotive is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 5,897 in Sonic Automotive on August 31, 2024 and sell it today you would earn a total of 1,096 from holding Sonic Automotive or generate 18.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Eagle Outfitters vs. Sonic Automotive
Performance |
| Timeline |
| American Eagle Outfitters |
| Sonic Automotive |
American Eagle and Sonic Automotive Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Eagle and Sonic Automotive
The main advantage of trading using opposite American Eagle and Sonic Automotive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Eagle position performs unexpectedly, Sonic Automotive 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 Sonic Automotive will offset losses from the drop in Sonic Automotive's long position.| American Eagle vs. Urban Outfitters | American Eagle vs. Foot Locker | American Eagle vs. Childrens Place | American Eagle vs. Abercrombie Fitch |
| Sonic Automotive vs. Lithia Motors | Sonic Automotive vs. AutoNation | Sonic Automotive vs. Asbury Automotive Group | Sonic Automotive vs. Penske Automotive 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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