Correlation Between Alliance Data and Golden Metal

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

Diversification Opportunities for Alliance Data and Golden Metal

0.38

Correlation Coefficient

Alliance Data  Golden Metal

Weak diversification

The 3 months correlation between Alliance and Golden is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Data Systems and Golden Metal Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Golden Metal Resources 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 Golden Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Golden Metal Resources has no effect on the direction of Alliance Data i.e., Alliance Data and Golden Metal go up and down completely randomly.

Pair Corralation between Alliance Data and Golden Metal

Assuming the 90 days trading horizon Alliance Data Systems is expected to generate 0.73 times more return on investment than Golden Metal. However, Alliance Data Systems is 1.37 times less risky than Golden Metal. It trades about 0.17 of its potential returns per unit of risk. Golden Metal Resources is currently generating about 0.03 per unit of risk. If you would invest  4,747  in Alliance Data Systems on September 13, 2024 and sell it today you would earn a total of  1,731  from holding Alliance Data Systems or generate 36.47% return on investment over 90 days.

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

Alliance Data Systems  vs.  Golden Metal Resources

Alliance Data Systems

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Data Systems are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Alliance Data unveiled solid returns over the last few months and may actually be approaching a breakup point.

Golden Metal Resources

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Golden Metal Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Golden Metal may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Alliance Data and Golden Metal

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

The idea behind Alliance Data Systems and Golden Metal Resources 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.