Correlation Between Abercrombie Fitch and American Eagle

Can any of the company-specific risk be diversified away by investing in both Abercrombie Fitch 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 Abercrombie Fitch and American Eagle into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Abercrombie Fitch and American Eagle Outfitters, you can compare the effects of market volatilities on Abercrombie Fitch 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 Abercrombie Fitch with a short position of American Eagle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Abercrombie Fitch and American Eagle.

Diversification Opportunities for Abercrombie Fitch and American Eagle

0.86

Correlation Coefficient

Abercrombie Fitch  American Eagle

Very poor diversification

The 3 months correlation between Abercrombie and American is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Abercrombie Fitch 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 Abercrombie Fitch 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 Abercrombie Fitch 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 Abercrombie Fitch i.e., Abercrombie Fitch and American Eagle go up and down completely randomly.

Pair Corralation between Abercrombie Fitch and American Eagle

Considering the 90-day investment horizon Abercrombie Fitch is expected to under-perform the American Eagle. In addition to that, Abercrombie Fitch is 1.59 times more volatile than American Eagle Outfitters. It trades about -0.27 of its total potential returns per unit of risk. American Eagle Outfitters is currently generating about -0.22 per unit of volatility. If you would invest  2,471  in American Eagle Outfitters on January 20, 2024 and sell it today you would lose (237.00) from holding American Eagle Outfitters or give up 9.59% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Abercrombie Fitch  vs.  American Eagle Outfitters

Abercrombie Fitch

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Abercrombie Fitch are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Abercrombie Fitch may actually be approaching a critical reversion point that can send shares even higher in May 2024.

American Eagle Outfitters

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Eagle Outfitters are ranked lower than 7 (%) 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 May 2024.

Pair Trading with Abercrombie Fitch and American Eagle

The main advantage of trading using opposite Abercrombie Fitch and American Eagle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Abercrombie Fitch 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 Abercrombie Fitch 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.