Correlation Between American Eagle and BII Railway

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

Diversification Opportunities for American Eagle and BII Railway

0.59

Correlation Coefficient

American Eagle  BII Railway

Very weak diversification

The 3 months correlation between American and BII is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding American Eagle Outfitters and BII Railway Transportation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BII Railway Transpor 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 BII Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BII Railway Transpor has no effect on the direction of American Eagle i.e., American Eagle and BII Railway go up and down completely randomly.

Pair Corralation between American Eagle and BII Railway

Assuming the 90 days trading horizon American Eagle Outfitters is expected to generate 0.64 times more return on investment than BII Railway. However, American Eagle Outfitters is 1.56 times less risky than BII Railway. It trades about 0.05 of its potential returns per unit of risk. BII Railway Transportation is currently generating about 0.02 per unit of risk. 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 Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

American Eagle Outfitters  vs.  BII Railway Transportation

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.

BII Railway Transpor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BII Railway Transportation are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, BII Railway is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with American Eagle and BII Railway

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

The idea behind American Eagle Outfitters and BII Railway Transportation 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.