Correlation Between American Eagle and WPP PLC
Can any of the company-specific risk be diversified away by investing in both American Eagle and WPP PLC 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 WPP PLC 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 WPP PLC ADR, you can compare the effects of market volatilities on American Eagle and WPP PLC 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 WPP PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Eagle and WPP PLC.
Diversification Opportunities for American Eagle and WPP PLC
-0.3 | Correlation Coefficient |
Very good diversification
The 3 months correlation between American and WPP is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding American Eagle Outfitters and WPP PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WPP PLC ADR 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 WPP PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WPP PLC ADR has no effect on the direction of American Eagle i.e., American Eagle and WPP PLC go up and down completely randomly.
Pair Corralation between American Eagle and WPP PLC
Considering the 90-day investment horizon American Eagle Outfitters is expected to generate 1.52 times more return on investment than WPP PLC. However, American Eagle is 1.52 times more volatile than WPP PLC ADR. It trades about 0.07 of its potential returns per unit of risk. WPP PLC ADR is currently generating about 0.02 per unit of risk. If you would invest 1,130 in American Eagle Outfitters on September 2, 2024 and sell it today you would earn a total of 794.00 from holding American Eagle Outfitters or generate 70.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Eagle Outfitters vs. WPP PLC ADR
Performance |
| Timeline |
| American Eagle Outfitters |
| WPP PLC ADR |
American Eagle and WPP PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Eagle and WPP PLC
The main advantage of trading using opposite American Eagle and WPP PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Eagle position performs unexpectedly, WPP PLC 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 WPP PLC will offset losses from the drop in WPP PLC's long position.| American Eagle vs. Urban Outfitters | American Eagle vs. Foot Locker | American Eagle vs. Childrens Place | American Eagle vs. Abercrombie Fitch |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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