Correlation Between Alliance Data and Rockfire Resources

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

Diversification Opportunities for Alliance Data and Rockfire Resources

0.68

Correlation Coefficient

Alliance Data  Rockfire Resources

Poor diversification

The 3 months correlation between Alliance and Rockfire is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Data Systems and Rockfire Resources plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rockfire Resources 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 Rockfire Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rockfire Resources plc has no effect on the direction of Alliance Data i.e., Alliance Data and Rockfire Resources go up and down completely randomly.

Pair Corralation between Alliance Data and Rockfire Resources

Assuming the 90 days trading horizon Alliance Data Systems is expected to generate 0.54 times more return on investment than Rockfire Resources. However, Alliance Data Systems is 1.86 times less risky than Rockfire Resources. It trades about -0.1 of its potential returns per unit of risk. Rockfire Resources plc is currently generating about -0.11 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.  Rockfire Resources 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.

Rockfire Resources plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rockfire Resources 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 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.

Pair Trading with Alliance Data and Rockfire Resources

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

The idea behind Alliance Data Systems and Rockfire Resources 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.

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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.