Correlation Between Alliance Data and Gfinity PLC

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

Diversification Opportunities for Alliance Data and Gfinity PLC

0.64

Correlation Coefficient

Alliance Data  Gfinity PLC

Poor diversification

The 3 months correlation between Alliance and Gfinity is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Data Systems and Gfinity PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gfinity 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 Gfinity PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gfinity PLC has no effect on the direction of Alliance Data i.e., Alliance Data and Gfinity PLC go up and down completely randomly.

Pair Corralation between Alliance Data and Gfinity PLC

Assuming the 90 days trading horizon Alliance Data is expected to generate 909.41 times less return on investment than Gfinity PLC. But when comparing it to its historical volatility, Alliance Data Systems is 10.59 times less risky than Gfinity PLC. It trades about 0.0 of its potential returns per unit of risk. Gfinity PLC is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  3.50  in Gfinity PLC on October 6, 2024 and sell it today you would earn a total of  4.00  from holding Gfinity PLC or generate 114.29% 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.  Gfinity 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.

Gfinity PLC

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gfinity PLC are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Gfinity PLC unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alliance Data and Gfinity PLC

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

The idea behind Alliance Data Systems and Gfinity 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.