Correlation Between Alliance Data and VeriSign

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

Diversification Opportunities for Alliance Data and VeriSign

0.63

Correlation Coefficient

Alliance Data  VeriSign

Poor diversification

The 3 months correlation between Alliance and VeriSign is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Data Systems and VeriSign in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VeriSign 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 VeriSign. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VeriSign has no effect on the direction of Alliance Data i.e., Alliance Data and VeriSign go up and down completely randomly.

Pair Corralation between Alliance Data and VeriSign

Assuming the 90 days trading horizon Alliance Data Systems is expected to under-perform the VeriSign. In addition to that, Alliance Data is 1.26 times more volatile than VeriSign. It trades about -0.16 of its total potential returns per unit of risk. VeriSign is currently generating about 0.21 per unit of volatility. If you would invest  20,118  in VeriSign on October 10, 2024 and sell it today you would earn a total of  849.00  from holding VeriSign or generate 4.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.74%
Values	Daily Returns

Alliance Data Systems  vs.  VeriSign

Alliance Data Systems

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Data Systems are ranked lower than 11 (%) 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.

VeriSign

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in VeriSign are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, VeriSign unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alliance Data and VeriSign

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

The idea behind Alliance Data Systems and VeriSign 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.