Correlation Between American Eagle and Arrow Electronics
Can any of the company-specific risk be diversified away by investing in both American Eagle and Arrow Electronics 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 Arrow Electronics 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 Arrow Electronics, you can compare the effects of market volatilities on American Eagle and Arrow Electronics 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 Arrow Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Eagle and Arrow Electronics.
Diversification Opportunities for American Eagle and Arrow Electronics
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Arrow is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding American Eagle Outfitters and Arrow Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Electronics 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 Arrow Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arrow Electronics has no effect on the direction of American Eagle i.e., American Eagle and Arrow Electronics go up and down completely randomly.
Pair Corralation between American Eagle and Arrow Electronics
Assuming the 90 days trading horizon American Eagle Outfitters is expected to under-perform the Arrow Electronics. But the stock apears to be less risky and, when comparing its historical volatility, American Eagle Outfitters is 1.09 times less risky than Arrow Electronics. The stock trades about -0.04 of its potential returns per unit of risk. The Arrow Electronics is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 11,100 in Arrow Electronics on September 2, 2024 and sell it today you would earn a total of 200.00 from holding Arrow Electronics or generate 1.8% 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. Arrow Electronics
Performance |
| Timeline |
| American Eagle Outfitters |
| Arrow Electronics |
American Eagle and Arrow Electronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Eagle and Arrow Electronics
The main advantage of trading using opposite American Eagle and Arrow Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Eagle position performs unexpectedly, Arrow Electronics 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 Arrow Electronics will offset losses from the drop in Arrow Electronics' long position.| American Eagle vs. Apple Inc | American Eagle vs. Apple Inc | American Eagle vs. Apple Inc | American Eagle vs. Apple Inc |
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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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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