Correlation Between Aspen Aerogels and American Eagle

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

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

Diversification Opportunities for Aspen Aerogels and American Eagle

0.68

Correlation Coefficient

Aspen Aerogels  American Eagle

Poor diversification

The 3 months correlation between Aspen and American is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Aspen Aerogels 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 Aspen Aerogels 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 Aspen Aerogels 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 Aspen Aerogels i.e., Aspen Aerogels and American Eagle go up and down completely randomly.

Pair Corralation between Aspen Aerogels and American Eagle

Given the investment horizon of 90 days Aspen Aerogels is expected to under-perform the American Eagle. In addition to that, Aspen Aerogels is 1.58 times more volatile than American Eagle Outfitters. It trades about -0.14 of its total potential returns per unit of risk. American Eagle Outfitters is currently generating about -0.14 per unit of volatility. If you would invest  2,606  in American Eagle Outfitters on February 1, 2024 and sell it today you would lose (180.00) from holding American Eagle Outfitters or give up 6.91% of portfolio value over 90 days.

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

Aspen Aerogels  vs.  American Eagle Outfitters

Aspen Aerogels

Risk-Adjusted Performance

10 of 100

Good

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

American Eagle Outfitters

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Eagle Outfitters are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, American Eagle displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aspen Aerogels and American Eagle

The main advantage of trading using opposite Aspen Aerogels and American Eagle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aspen Aerogels 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 Aspen Aerogels 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.