Correlation Between Alliance Data and Rio Tinto

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

Diversification Opportunities for Alliance Data and Rio Tinto

-0.46

Correlation Coefficient

Alliance Data  Rio Tinto

Very good diversification

The 3 months correlation between Alliance and Rio is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Data Systems and Rio Tinto PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto PLC 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 Rio Tinto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio Tinto PLC has no effect on the direction of Alliance Data i.e., Alliance Data and Rio Tinto go up and down completely randomly.

Pair Corralation between Alliance Data and Rio Tinto

Assuming the 90 days trading horizon Alliance Data Systems is expected to generate 1.97 times more return on investment than Rio Tinto. However, Alliance Data is 1.97 times more volatile than Rio Tinto PLC. It trades about 0.11 of its potential returns per unit of risk. Rio Tinto PLC is currently generating about 0.0 per unit of risk. If you would invest  5,254  in Alliance Data Systems on September 20, 2024 and sell it today you would earn a total of  1,146  from holding Alliance Data Systems or generate 21.81% return on investment over 90 days.

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

Alliance Data Systems  vs.  Rio Tinto PLC

Alliance Data Systems

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Data Systems are ranked lower than 8 (%) 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.

Rio Tinto PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rio Tinto PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Rio Tinto is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Alliance Data and Rio Tinto

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

The idea behind Alliance Data Systems and Rio Tinto PLC 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 Stocks Directory module to find actively traded stocks across global markets.