Correlation Between Alliance Data and Impax Environmental

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

Diversification Opportunities for Alliance Data and Impax Environmental

-0.65

Correlation Coefficient

Alliance Data  Impax Environmental

Excellent diversification

The 3 months correlation between Alliance and Impax is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Data Systems and Impax Environmental Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Impax Environmental 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 Impax Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Impax Environmental has no effect on the direction of Alliance Data i.e., Alliance Data and Impax Environmental go up and down completely randomly.

Pair Corralation between Alliance Data and Impax Environmental

Assuming the 90 days trading horizon Alliance Data Systems is expected to generate 3.58 times more return on investment than Impax Environmental. However, Alliance Data is 3.58 times more volatile than Impax Environmental Markets. It trades about 0.05 of its potential returns per unit of risk. Impax Environmental Markets is currently generating about -0.01 per unit of risk. If you would invest  3,910  in Alliance Data Systems on October 11, 2024 and sell it today you would earn a total of  1,997  from holding Alliance Data Systems or generate 51.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	80.92%
Values	Daily Returns

Alliance Data Systems  vs.  Impax Environmental Markets

Alliance Data Systems

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Data Systems are ranked lower than 8 (%) 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.

Impax Environmental

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Impax Environmental Markets has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Impax Environmental is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Alliance Data and Impax Environmental

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

The idea behind Alliance Data Systems and Impax Environmental Markets 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.