Correlation Between CITY OFFICE and American Eagle

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

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

Diversification Opportunities for CITY OFFICE and American Eagle

0.25

Correlation Coefficient

CITY OFFICE  American Eagle

Modest diversification

The 3 months correlation between CITY and American is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding CITY OFFICE REIT 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 CITY OFFICE 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 CITY OFFICE REIT 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 CITY OFFICE i.e., CITY OFFICE and American Eagle go up and down completely randomly.

Pair Corralation between CITY OFFICE and American Eagle

Assuming the 90 days horizon CITY OFFICE REIT is expected to generate 1.23 times more return on investment than American Eagle. However, CITY OFFICE is 1.23 times more volatile than American Eagle Outfitters. It trades about 0.08 of its potential returns per unit of risk. American Eagle Outfitters is currently generating about -0.02 per unit of risk. If you would invest  495.00  in CITY OFFICE REIT on September 1, 2024 and sell it today you would earn a total of  65.00  from holding CITY OFFICE REIT or generate 13.13% return on investment over 90 days.

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

CITY OFFICE REIT  vs.  American Eagle Outfitters

CITY OFFICE REIT

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CITY OFFICE REIT are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CITY OFFICE reported solid returns over the last few months and may actually be approaching a breakup point.

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 comparatively stable basic indicators, American Eagle is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with CITY OFFICE and American Eagle

The main advantage of trading using opposite CITY OFFICE and American Eagle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CITY OFFICE 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 CITY OFFICE REIT 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.

Check out your portfolio center.

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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.