Correlation Between American Eagle and Ribbon Communications

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

Diversification Opportunities for American Eagle and Ribbon Communications

-0.77

Correlation Coefficient

American Eagle  Ribbon Communications

Pay attention - limited upside

The 3 months correlation between American and Ribbon is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding American Eagle Outfitters and Ribbon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ribbon Communications 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 Ribbon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ribbon Communications has no effect on the direction of American Eagle i.e., American Eagle and Ribbon Communications go up and down completely randomly.

Pair Corralation between American Eagle and Ribbon Communications

Assuming the 90 days trading horizon American Eagle is expected to generate 1.73 times less return on investment than Ribbon Communications. But when comparing it to its historical volatility, American Eagle Outfitters is 1.25 times less risky than Ribbon Communications. It trades about 0.03 of its potential returns per unit of risk. Ribbon Communications is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  270.00  in Ribbon Communications on September 28, 2024 and sell it today you would earn a total of  128.00  from holding Ribbon Communications or generate 47.41% 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.  Ribbon Communications

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 fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Ribbon Communications

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ribbon Communications are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Ribbon Communications reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Eagle and Ribbon Communications

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

The idea behind American Eagle Outfitters and Ribbon Communications 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.