Correlation Between Choice Hotels and American Eagle
Can any of the company-specific risk be diversified away by investing in both Choice Hotels 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 Choice Hotels and American Eagle into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Choice Hotels International and American Eagle Outfitters, you can compare the effects of market volatilities on Choice Hotels 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 Choice Hotels with a short position of American Eagle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Choice Hotels and American Eagle.
Diversification Opportunities for Choice Hotels and American Eagle
-0.35 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Choice and American is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Choice Hotels International 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 Choice Hotels 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 Choice Hotels International 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 Choice Hotels i.e., Choice Hotels and American Eagle go up and down completely randomly.
Pair Corralation between Choice Hotels and American Eagle
Assuming the 90 days horizon Choice Hotels is expected to generate 1.25 times less return on investment than American Eagle. But when comparing it to its historical volatility, Choice Hotels International is 1.65 times less risky than American Eagle. It trades about 0.04 of its potential returns per unit of risk. American Eagle Outfitters is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1,415 in American Eagle Outfitters on September 3, 2024 and sell it today you would earn a total of 335.00 from holding American Eagle Outfitters or generate 23.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Choice Hotels International vs. American Eagle Outfitters
Performance |
| Timeline |
| Choice Hotels Intern |
| American Eagle Outfitters |
Choice Hotels and American Eagle Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Choice Hotels and American Eagle
The main advantage of trading using opposite Choice Hotels and American Eagle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Choice Hotels 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.| Choice Hotels vs. Check Point Software | Choice Hotels vs. AXWAY SOFTWARE EO | Choice Hotels vs. ECHO INVESTMENT ZY | Choice Hotels vs. Take Two Interactive Software |
| American Eagle vs. Apple Inc | American Eagle vs. Apple Inc | American Eagle vs. Apple Inc | American Eagle vs. Apple Inc |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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