Correlation Between Microsoft and American Eagle

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

Diversification Opportunities for Microsoft and American Eagle

-0.38
  Correlation Coefficient

Very good diversification

The 3 months correlation between Microsoft and American is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft 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 Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and American Eagle go up and down completely randomly.

Pair Corralation between Microsoft and American Eagle

Assuming the 90 days trading horizon Microsoft is expected to under-perform the American Eagle. In addition to that, Microsoft is 1.14 times more volatile than American Eagle Outfitters. It trades about -0.05 of its total potential returns per unit of risk. American Eagle Outfitters is currently generating about -0.05 per unit of volatility. If you would invest  1,637  in American Eagle Outfitters on November 2, 2024 and sell it today you would lose (47.00) from holding American Eagle Outfitters or give up 2.87% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy95.45%
ValuesDaily Returns

Microsoft  vs.  American Eagle Outfitters

 Performance 
       Timeline  
Microsoft 

Risk-Adjusted Performance

5 of 100

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

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
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 fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Microsoft and American Eagle Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft and American Eagle

The main advantage of trading using opposite Microsoft and American Eagle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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 Microsoft 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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