Correlation Between Amazon and American Eagle

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Can any of the company-specific risk be diversified away by investing in both Amazon and American Eagle 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 Amazon and American Eagle into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and American Eagle Outfitters, you can compare the effects of market volatilities on Amazon and American Eagle 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 Amazon with a short position of American Eagle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and American Eagle.

Diversification Opportunities for Amazon and American Eagle

AmazonAmericanDiversified AwayAmazonAmericanDiversified Away100%
-0.54
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Amazon and American is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and American Eagle Outfitters in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Eagle Outfitters and Amazon 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 Amazon Inc are associated (or correlated) with American Eagle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Eagle Outfitters has no effect on the direction of Amazon i.e., Amazon and American Eagle go up and down completely randomly.

Pair Corralation between Amazon and American Eagle

Assuming the 90 days trading horizon Amazon Inc is expected to generate 0.59 times more return on investment than American Eagle. However, Amazon Inc is 1.7 times less risky than American Eagle. It trades about -0.06 of its potential returns per unit of risk. American Eagle Outfitters is currently generating about -0.15 per unit of risk. If you would invest  21,905  in Amazon Inc on November 21, 2024 and sell it today you would lose (460.00) from holding Amazon Inc or give up 2.1% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Amazon Inc  vs.  American Eagle Outfitters

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -15-10-5051015
JavaScript chart by amCharts 3.21.15AMZ AFG
       Timeline  
Amazon Inc 

Risk-Adjusted Performance

Good

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Amazon displayed solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb190195200205210215220225230
American Eagle Outfitters 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days American Eagle Outfitters has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb141516171819

Amazon and American Eagle Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-5.02-3.76-2.5-1.24-0.0211.32.623.945.26 0.020.040.060.080.100.120.14
JavaScript chart by amCharts 3.21.15AMZ AFG
       Returns  

Pair Trading with Amazon and American Eagle

The main advantage of trading using opposite Amazon and American Eagle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, American Eagle 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 American Eagle will offset losses from the drop in American Eagle's long position.
The idea behind Amazon Inc and American Eagle Outfitters 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.

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