Correlation Between Alliance Data and Central Asia

Can any of the company-specific risk be diversified away by investing in both Alliance Data and Central Asia 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 Alliance Data and Central Asia into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Alliance Data Systems and Central Asia Metals, you can compare the effects of market volatilities on Alliance Data and Central Asia 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 Alliance Data with a short position of Central Asia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alliance Data and Central Asia.

Diversification Opportunities for Alliance Data and Central Asia

-0.8

Correlation Coefficient

Alliance Data  Central Asia

Pay attention - limited upside

The 3 months correlation between Alliance and Central is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Data Systems and Central Asia Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Asia Metals and Alliance Data 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 Alliance Data Systems are associated (or correlated) with Central Asia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Asia Metals has no effect on the direction of Alliance Data i.e., Alliance Data and Central Asia go up and down completely randomly.

Pair Corralation between Alliance Data and Central Asia

Assuming the 90 days trading horizon Alliance Data Systems is expected to generate 2.16 times more return on investment than Central Asia. However, Alliance Data is 2.16 times more volatile than Central Asia Metals. It trades about 0.17 of its potential returns per unit of risk. Central Asia Metals is currently generating about -0.06 per unit of risk. If you would invest  4,747  in Alliance Data Systems on September 13, 2024 and sell it today you would earn a total of  1,731  from holding Alliance Data Systems or generate 36.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Alliance Data Systems  vs.  Central Asia Metals

Alliance Data Systems

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Data Systems are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Alliance Data unveiled solid returns over the last few months and may actually be approaching a breakup point.

Central Asia Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Central Asia Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Central Asia is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Alliance Data and Central Asia

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

The idea behind Alliance Data Systems and Central Asia Metals 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.