Correlation Between American Eagle and Old Republic

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

Diversification Opportunities for American Eagle and Old Republic

0.71

Correlation Coefficient

American Eagle  Old Republic

Poor diversification

The 3 months correlation between American and Old is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding American Eagle Outfitters and Old Republic International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Old Republic Interna 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 Old Republic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Old Republic Interna has no effect on the direction of American Eagle i.e., American Eagle and Old Republic go up and down completely randomly.

Pair Corralation between American Eagle and Old Republic

Considering the 90-day investment horizon American Eagle is expected to generate 1.03 times less return on investment than Old Republic. In addition to that, American Eagle is 2.28 times more volatile than Old Republic International. It trades about 0.07 of its total potential returns per unit of risk. Old Republic International is currently generating about 0.15 per unit of volatility. If you would invest  2,928  in Old Republic International on February 14, 2024 and sell it today you would earn a total of  184.00  from holding Old Republic International or generate 6.28% return on investment over 90 days.

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

American Eagle Outfitters  vs.  Old Republic International

American Eagle Outfitters

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Eagle Outfitters are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, American Eagle may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Old Republic Interna

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Old Republic International are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, Old Republic may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with American Eagle and Old Republic

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

The idea behind American Eagle Outfitters and Old Republic International 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.