Correlation Between American Eagle and Burlington Stores

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

Diversification Opportunities for American Eagle and Burlington Stores

-0.21

Correlation Coefficient

American Eagle  Burlington Stores

Very good diversification

The 3 months correlation between American and Burlington is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding American Eagle Outfitters and Burlington Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Burlington Stores 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 Burlington Stores. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Burlington Stores has no effect on the direction of American Eagle i.e., American Eagle and Burlington Stores go up and down completely randomly.

Pair Corralation between American Eagle and Burlington Stores

Considering the 90-day investment horizon American Eagle Outfitters is expected to under-perform the Burlington Stores. In addition to that, American Eagle is 1.26 times more volatile than Burlington Stores. It trades about -0.06 of its total potential returns per unit of risk. Burlington Stores is currently generating about 0.07 per unit of volatility. If you would invest  26,824  in Burlington Stores on August 30, 2024 and sell it today you would earn a total of  2,012  from holding Burlington Stores or generate 7.5% return on investment over 90 days.

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

American Eagle Outfitters  vs.  Burlington Stores

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 latest unfluctuating performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Burlington Stores

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Burlington Stores are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Burlington Stores may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with American Eagle and Burlington Stores

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

The idea behind American Eagle Outfitters and Burlington Stores 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.