Correlation Between FC Investment and Alliance Data

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

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

Diversification Opportunities for FC Investment and Alliance Data

0.95

Correlation Coefficient

FC Investment  Alliance Data

Almost no diversification

The 3 months correlation between FCIT and Alliance is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding FC Investment Trust and Alliance Data Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alliance Data Systems and FC Investment 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 FC Investment Trust are associated (or correlated) with Alliance Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alliance Data Systems has no effect on the direction of FC Investment i.e., FC Investment and Alliance Data go up and down completely randomly.

Pair Corralation between FC Investment and Alliance Data

Assuming the 90 days trading horizon FC Investment is expected to generate 3.66 times less return on investment than Alliance Data. But when comparing it to its historical volatility, FC Investment Trust is 4.41 times less risky than Alliance Data. It trades about 0.2 of its potential returns per unit of risk. Alliance Data Systems is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  4,714  in Alliance Data Systems on September 29, 2024 and sell it today you would earn a total of  1,484  from holding Alliance Data Systems or generate 31.48% return on investment over 90 days.

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

FC Investment Trust  vs.  Alliance Data Systems

FC Investment Trust

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FC Investment Trust are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, FC Investment may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Alliance Data Systems

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Data Systems are ranked lower than 12 (%) 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.

Pair Trading with FC Investment and Alliance Data

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

The idea behind FC Investment Trust and Alliance Data Systems 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.