Correlation Between American Eagle and Victorias Secret

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

Diversification Opportunities for American Eagle and Victorias Secret

-0.71

Correlation Coefficient

American Eagle  Victorias Secret

Pay attention - limited upside

The 3 months correlation between American and Victorias is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding American Eagle Outfitters and Victorias Secret Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Victorias Secret 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 Victorias Secret. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Victorias Secret has no effect on the direction of American Eagle i.e., American Eagle and Victorias Secret go up and down completely randomly.

Pair Corralation between American Eagle and Victorias Secret

Considering the 90-day investment horizon American Eagle Outfitters is expected to under-perform the Victorias Secret. But the stock apears to be less risky and, when comparing its historical volatility, American Eagle Outfitters is 1.08 times less risky than Victorias Secret. The stock trades about -0.04 of its potential returns per unit of risk. The Victorias Secret Co is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest  2,357  in Victorias Secret Co on September 15, 2024 and sell it today you would earn a total of  2,514  from holding Victorias Secret Co or generate 106.66% return on investment over 90 days.

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

American Eagle Outfitters  vs.  Victorias Secret Co

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 inconsistent 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.

Victorias Secret

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Victorias Secret Co are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental indicators, Victorias Secret displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Eagle and Victorias Secret

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

The idea behind American Eagle Outfitters and Victorias Secret Co 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.