Correlation Between X FAB and American Eagle

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

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

Diversification Opportunities for X FAB and American Eagle

0.54

Correlation Coefficient

X FAB  American Eagle

Very weak diversification

The 3 months correlation between XFB and American is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding X FAB Silicon Foundries 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 X FAB 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 X FAB Silicon Foundries 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 X FAB i.e., X FAB and American Eagle go up and down completely randomly.

Pair Corralation between X FAB and American Eagle

Assuming the 90 days trading horizon X FAB Silicon Foundries is expected to under-perform the American Eagle. In addition to that, X FAB is 1.34 times more volatile than American Eagle Outfitters. It trades about -0.07 of its total potential returns per unit of risk. American Eagle Outfitters is currently generating about 0.08 per unit of volatility. If you would invest  1,718  in American Eagle Outfitters on September 5, 2024 and sell it today you would earn a total of  172.00  from holding American Eagle Outfitters or generate 10.01% return on investment over 90 days.

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

X FAB Silicon Foundries  vs.  American Eagle Outfitters

X FAB Silicon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days X FAB Silicon Foundries 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 fundamental drivers remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

American Eagle Outfitters

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Eagle Outfitters are ranked lower than 5 (%) 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.

Pair Trading with X FAB and American Eagle

The main advantage of trading using opposite X FAB and American Eagle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if X FAB 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 X FAB Silicon Foundries 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.