Correlation Between Alliance Data and DG Innovate

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

Diversification Opportunities for Alliance Data and DG Innovate

0.59

Correlation Coefficient

Alliance Data  DG Innovate

Very weak diversification

The 3 months correlation between Alliance and DGI is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Data Systems and DG Innovate PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DG Innovate 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 DG Innovate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DG Innovate PLC has no effect on the direction of Alliance Data i.e., Alliance Data and DG Innovate go up and down completely randomly.

Pair Corralation between Alliance Data and DG Innovate

Assuming the 90 days trading horizon Alliance Data Systems is expected to generate 0.53 times more return on investment than DG Innovate. However, Alliance Data Systems is 1.88 times less risky than DG Innovate. It trades about 0.16 of its potential returns per unit of risk. DG Innovate PLC is currently generating about 0.06 per unit of risk. If you would invest  4,929  in Alliance Data Systems on September 14, 2024 and sell it today you would earn a total of  1,664  from holding Alliance Data Systems or generate 33.76% return on investment over 90 days.

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

Alliance Data Systems  vs.  DG Innovate PLC

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.

DG Innovate PLC

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DG Innovate PLC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, DG Innovate exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alliance Data and DG Innovate

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

The idea behind Alliance Data Systems and DG Innovate 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..