Correlation Between Duluth Holdings and American Eagle

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

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

Diversification Opportunities for Duluth Holdings and American Eagle

-0.23

Correlation Coefficient

Duluth Holdings  American Eagle

Very good diversification

The 3 months correlation between Duluth and American is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Duluth Holdings 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 Duluth Holdings 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 Duluth Holdings 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 Duluth Holdings i.e., Duluth Holdings and American Eagle go up and down completely randomly.

Pair Corralation between Duluth Holdings and American Eagle

Given the investment horizon of 90 days Duluth Holdings is expected to under-perform the American Eagle. But the stock apears to be less risky and, when comparing its historical volatility, Duluth Holdings is 1.27 times less risky than American Eagle. The stock trades about -0.39 of its potential returns per unit of risk. The American Eagle Outfitters is currently generating about -0.22 of returns per unit of risk over similar time horizon. 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 Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Duluth Holdings  vs.  American Eagle Outfitters

Duluth Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Duluth Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

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 Duluth Holdings and American Eagle

The main advantage of trading using opposite Duluth Holdings and American Eagle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Duluth Holdings 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 Duluth Holdings 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.