Correlation Between Align Technology and Bread Financial

Can any of the company-specific risk be diversified away by investing in both Align Technology and Bread Financial 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 Align Technology and Bread Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Align Technology and Bread Financial Holdings, you can compare the effects of market volatilities on Align Technology and Bread Financial 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 Align Technology with a short position of Bread Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Align Technology and Bread Financial.

Diversification Opportunities for Align Technology and Bread Financial

0.12

Correlation Coefficient

Align Technology  Bread Financial

Average diversification

The 3 months correlation between Align and Bread is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Align Technology and Bread Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bread Financial Holdings and Align Technology 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 Align Technology are associated (or correlated) with Bread Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bread Financial Holdings has no effect on the direction of Align Technology i.e., Align Technology and Bread Financial go up and down completely randomly.

Pair Corralation between Align Technology and Bread Financial

Assuming the 90 days trading horizon Align Technology is expected to generate 1.49 times less return on investment than Bread Financial. But when comparing it to its historical volatility, Align Technology is 2.44 times less risky than Bread Financial. It trades about 0.08 of its potential returns per unit of risk. Bread Financial Holdings is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  8,231  in Bread Financial Holdings on September 2, 2024 and sell it today you would earn a total of  655.00  from holding Bread Financial Holdings or generate 7.96% return on investment over 90 days.

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

Align Technology  vs.  Bread Financial Holdings

Align Technology

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Align Technology are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Align Technology may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Bread Financial Holdings

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bread Financial Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain essential indicators, Bread Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Align Technology and Bread Financial

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

The idea behind Align Technology and Bread Financial Holdings 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.