Correlation Between CN MODERN and Alliance Data

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

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

Diversification Opportunities for CN MODERN and Alliance Data

0.3

Correlation Coefficient

CN MODERN  Alliance Data

Weak diversification

The 3 months correlation between 07M and Alliance is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding CN MODERN DAIRY 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 CN MODERN 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 CN MODERN DAIRY 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 CN MODERN i.e., CN MODERN and Alliance Data go up and down completely randomly.

Pair Corralation between CN MODERN and Alliance Data

Assuming the 90 days trading horizon CN MODERN is expected to generate 2.98 times less return on investment than Alliance Data. In addition to that, CN MODERN is 1.12 times more volatile than Alliance Data Systems. It trades about 0.04 of its total potential returns per unit of risk. Alliance Data Systems is currently generating about 0.13 per unit of volatility. If you would invest  4,604  in Alliance Data Systems on October 12, 2024 and sell it today you would earn a total of  1,124  from holding Alliance Data Systems or generate 24.41% return on investment over 90 days.

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

CN MODERN DAIRY  vs.  Alliance Data Systems

CN MODERN DAIRY

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CN MODERN DAIRY are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile primary indicators, CN MODERN may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Alliance Data Systems

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Data Systems are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Alliance Data unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CN MODERN and Alliance Data

The main advantage of trading using opposite CN MODERN and Alliance Data positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CN MODERN 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 CN MODERN DAIRY 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.