Correlation Between TEXAS ROADHOUSE and American Eagle

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

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

Diversification Opportunities for TEXAS ROADHOUSE and American Eagle

-0.58

Correlation Coefficient

TEXAS ROADHOUSE  American Eagle

Excellent diversification

The 3 months correlation between TEXAS and American is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding TEXAS ROADHOUSE 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 TEXAS ROADHOUSE 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 TEXAS ROADHOUSE 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 TEXAS ROADHOUSE i.e., TEXAS ROADHOUSE and American Eagle go up and down completely randomly.

Pair Corralation between TEXAS ROADHOUSE and American Eagle

Assuming the 90 days trading horizon TEXAS ROADHOUSE is expected to generate 0.63 times more return on investment than American Eagle. However, TEXAS ROADHOUSE is 1.6 times less risky than American Eagle. It trades about 0.13 of its potential returns per unit of risk. American Eagle Outfitters is currently generating about -0.06 per unit of risk. If you would invest  15,135  in TEXAS ROADHOUSE on September 23, 2024 and sell it today you would earn a total of  2,325  from holding TEXAS ROADHOUSE or generate 15.36% return on investment over 90 days.

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

TEXAS ROADHOUSE  vs.  American Eagle Outfitters

TEXAS ROADHOUSE

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TEXAS ROADHOUSE are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, TEXAS ROADHOUSE exhibited solid returns over the last few months and may actually be approaching a breakup point.

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 uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with TEXAS ROADHOUSE and American Eagle

The main advantage of trading using opposite TEXAS ROADHOUSE and American Eagle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TEXAS ROADHOUSE 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 TEXAS ROADHOUSE 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.