Correlation Between American Eagle and Carvana

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

Diversification Opportunities for American Eagle and Carvana

0.45

Correlation Coefficient

American Eagle  Carvana

Very weak diversification

The 3 months correlation between American and Carvana is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding American Eagle Outfitters and Carvana Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carvana 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 Carvana. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carvana has no effect on the direction of American Eagle i.e., American Eagle and Carvana go up and down completely randomly.

Pair Corralation between American Eagle and Carvana

Considering the 90-day investment horizon American Eagle is expected to generate 3.29 times less return on investment than Carvana. But when comparing it to its historical volatility, American Eagle Outfitters is 3.29 times less risky than Carvana. It trades about 0.14 of its potential returns per unit of risk. Carvana Co is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,372  in Carvana Co on February 23, 2024 and sell it today you would earn a total of  9,619  from holding Carvana Co or generate 701.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

American Eagle Outfitters  vs.  Carvana Co

American Eagle Outfitters

Risk-Adjusted Performance

0 of 100

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 very healthy technical and fundamental indicators, American Eagle is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Carvana

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Carvana Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Carvana sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Eagle and Carvana

The main advantage of trading using opposite American Eagle and Carvana positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Eagle position performs unexpectedly, Carvana 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 Carvana will offset losses from the drop in Carvana's long position.

The idea behind American Eagle Outfitters and Carvana Co 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.