Correlation Between Alliance Data and Morgan Advanced

Can any of the company-specific risk be diversified away by investing in both Alliance Data and Morgan Advanced 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 Morgan Advanced 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 Morgan Advanced Materials, you can compare the effects of market volatilities on Alliance Data and Morgan Advanced 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 Morgan Advanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alliance Data and Morgan Advanced.

Diversification Opportunities for Alliance Data and Morgan Advanced

0.3

Correlation Coefficient

Alliance Data  Morgan Advanced

Weak diversification

The 3 months correlation between Alliance and Morgan is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Data Systems and Morgan Advanced Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morgan Advanced Materials 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 Morgan Advanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Morgan Advanced Materials has no effect on the direction of Alliance Data i.e., Alliance Data and Morgan Advanced go up and down completely randomly.

Pair Corralation between Alliance Data and Morgan Advanced

Assuming the 90 days trading horizon Alliance Data Systems is expected to generate 2.57 times more return on investment than Morgan Advanced. However, Alliance Data is 2.57 times more volatile than Morgan Advanced Materials. It trades about 0.17 of its potential returns per unit of risk. Morgan Advanced Materials is currently generating about -0.01 per unit of risk. If you would invest  4,714  in Alliance Data Systems on September 28, 2024 and sell it today you would earn a total of  1,575  from holding Alliance Data Systems or generate 33.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Alliance Data Systems  vs.  Morgan Advanced Materials

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 uncertain basic indicators, Alliance Data unveiled solid returns over the last few months and may actually be approaching a breakup point.

Morgan Advanced Materials

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Alliance Data and Morgan Advanced

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

The idea behind Alliance Data Systems and Morgan Advanced Materials 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..