Correlation Between Major Drilling and American Eagle

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

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

Diversification Opportunities for Major Drilling and American Eagle

-0.06

Correlation Coefficient

Major Drilling  American Eagle

Good diversification

The 3 months correlation between Major and American is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group 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 Major Drilling 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 Major Drilling Group 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 Major Drilling i.e., Major Drilling and American Eagle go up and down completely randomly.

Pair Corralation between Major Drilling and American Eagle

Assuming the 90 days horizon Major Drilling Group is expected to under-perform the American Eagle. In addition to that, Major Drilling is 1.21 times more volatile than American Eagle Outfitters. It trades about -0.01 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  1,798  in American Eagle Outfitters on September 4, 2024 and sell it today you would earn a total of  102.00  from holding American Eagle Outfitters or generate 5.67% return on investment over 90 days.

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

Major Drilling Group  vs.  American Eagle Outfitters

Major Drilling Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Major Drilling Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Major Drilling is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

American Eagle Outfitters

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Eagle Outfitters are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, American Eagle may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Major Drilling and American Eagle

The main advantage of trading using opposite Major Drilling and American Eagle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Major Drilling 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 Major Drilling Group 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.