Correlation Between American Eagle and ON SEMICONDUCTOR

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Can any of the company-specific risk be diversified away by investing in both American Eagle and ON SEMICONDUCTOR 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 ON SEMICONDUCTOR 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 ON SEMICONDUCTOR, you can compare the effects of market volatilities on American Eagle and ON SEMICONDUCTOR 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 ON SEMICONDUCTOR. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Eagle and ON SEMICONDUCTOR.

Diversification Opportunities for American Eagle and ON SEMICONDUCTOR

0.08
  Correlation Coefficient

Significant diversification

The 3 months correlation between American and XS4 is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding American Eagle Outfitters and ON SEMICONDUCTOR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ON SEMICONDUCTOR 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 ON SEMICONDUCTOR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ON SEMICONDUCTOR has no effect on the direction of American Eagle i.e., American Eagle and ON SEMICONDUCTOR go up and down completely randomly.

Pair Corralation between American Eagle and ON SEMICONDUCTOR

Assuming the 90 days trading horizon American Eagle is expected to generate 5.34 times less return on investment than ON SEMICONDUCTOR. In addition to that, American Eagle is 1.14 times more volatile than ON SEMICONDUCTOR. It trades about 0.02 of its total potential returns per unit of risk. ON SEMICONDUCTOR is currently generating about 0.11 per unit of volatility. If you would invest  6,406  in ON SEMICONDUCTOR on September 5, 2024 and sell it today you would earn a total of  610.00  from holding ON SEMICONDUCTOR or generate 9.52% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

American Eagle Outfitters  vs.  ON SEMICONDUCTOR

 Performance 
       Timeline  
American Eagle Outfitters 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in American Eagle Outfitters are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, American Eagle may actually be approaching a critical reversion point that can send shares even higher in January 2025.
ON SEMICONDUCTOR 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in ON SEMICONDUCTOR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, ON SEMICONDUCTOR may actually be approaching a critical reversion point that can send shares even higher in January 2025.

American Eagle and ON SEMICONDUCTOR Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with American Eagle and ON SEMICONDUCTOR

The main advantage of trading using opposite American Eagle and ON SEMICONDUCTOR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Eagle position performs unexpectedly, ON SEMICONDUCTOR 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 ON SEMICONDUCTOR will offset losses from the drop in ON SEMICONDUCTOR's long position.
The idea behind American Eagle Outfitters and ON SEMICONDUCTOR pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Equity Valuation module to check real value of public entities based on technical and fundamental data.

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