Correlation Between Brilliant Earth and American Eagle

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

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

Diversification Opportunities for Brilliant Earth and American Eagle

0.38

Correlation Coefficient

Brilliant Earth  American Eagle

Weak diversification

The 3 months correlation between Brilliant and American is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Brilliant Earth Group 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 Brilliant Earth 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 Brilliant Earth Group 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 Brilliant Earth i.e., Brilliant Earth and American Eagle go up and down completely randomly.

Pair Corralation between Brilliant Earth and American Eagle

Given the investment horizon of 90 days Brilliant Earth Group is expected to generate 1.84 times more return on investment than American Eagle. However, Brilliant Earth is 1.84 times more volatile than American Eagle Outfitters. It trades about 0.03 of its potential returns per unit of risk. American Eagle Outfitters is currently generating about 0.0 per unit of risk. If you would invest  186.00  in Brilliant Earth Group on September 1, 2024 and sell it today you would earn a total of  3.00  from holding Brilliant Earth Group or generate 1.61% return on investment over 90 days.

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

Brilliant Earth Group  vs.  American Eagle Outfitters

Brilliant Earth Group

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Brilliant Earth Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady essential indicators, Brilliant Earth may actually be approaching a critical reversion point that can send shares even higher in December 2024.

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 very healthy technical and fundamental indicators, American Eagle is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Brilliant Earth and American Eagle

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

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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.