Correlation Between Alliance Data and Gear4music (Holdings)

Can any of the company-specific risk be diversified away by investing in both Alliance Data and Gear4music (Holdings) 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 Gear4music (Holdings) 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 Gear4music Plc, you can compare the effects of market volatilities on Alliance Data and Gear4music (Holdings) 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 Gear4music (Holdings). Check out your portfolio center. Please also check ongoing floating volatility patterns of Alliance Data and Gear4music (Holdings).

Diversification Opportunities for Alliance Data and Gear4music (Holdings)

0.78

Correlation Coefficient

Alliance Data  Gear4music (Holdings)

Poor diversification

The 3 months correlation between Alliance and Gear4music is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Data Systems and Gear4music Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gear4music (Holdings) 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 Gear4music (Holdings). Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gear4music (Holdings) has no effect on the direction of Alliance Data i.e., Alliance Data and Gear4music (Holdings) go up and down completely randomly.

Pair Corralation between Alliance Data and Gear4music (Holdings)

Assuming the 90 days trading horizon Alliance Data Systems is expected to generate 2.23 times more return on investment than Gear4music (Holdings). However, Alliance Data is 2.23 times more volatile than Gear4music Plc. It trades about -0.1 of its potential returns per unit of risk. Gear4music Plc is currently generating about -0.23 per unit of risk. If you would invest  6,125  in Alliance Data Systems on December 30, 2024 and sell it today you would lose (1,135) from holding Alliance Data Systems or give up 18.53% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	92.31%
Values	Daily Returns

Alliance Data Systems  vs.  Gear4music Plc

Alliance Data Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alliance Data Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Gear4music (Holdings)

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gear4music Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Alliance Data and Gear4music (Holdings)

The main advantage of trading using opposite Alliance Data and Gear4music (Holdings) positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alliance Data position performs unexpectedly, Gear4music (Holdings) 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 Gear4music (Holdings) will offset losses from the drop in Gear4music (Holdings)'s long position.

The idea behind Alliance Data Systems and Gear4music 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.