Correlation Between Park Hotels and Alliance Data

Can any of the company-specific risk be diversified away by investing in both Park Hotels and Alliance Data 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 Park Hotels and Alliance Data into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Park Hotels Resorts and Alliance Data Systems, you can compare the effects of market volatilities on Park Hotels and Alliance Data 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 Park Hotels with a short position of Alliance Data. Check out your portfolio center. Please also check ongoing floating volatility patterns of Park Hotels and Alliance Data.

Diversification Opportunities for Park Hotels and Alliance Data

0.59

Correlation Coefficient

Park Hotels  Alliance Data

Very weak diversification

The 3 months correlation between Park and Alliance is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Park Hotels Resorts and Alliance Data Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alliance Data Systems and Park Hotels 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 Park Hotels Resorts are associated (or correlated) with Alliance Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alliance Data Systems has no effect on the direction of Park Hotels i.e., Park Hotels and Alliance Data go up and down completely randomly.

Pair Corralation between Park Hotels and Alliance Data

Assuming the 90 days trading horizon Park Hotels is expected to generate 1.19 times less return on investment than Alliance Data. But when comparing it to its historical volatility, Park Hotels Resorts is 1.94 times less risky than Alliance Data. It trades about 0.04 of its potential returns per unit of risk. Alliance Data Systems is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  5,712  in Alliance Data Systems on August 31, 2024 and sell it today you would earn a total of  67.00  from holding Alliance Data Systems or generate 1.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.92%
Values	Daily Returns

Park Hotels Resorts  vs.  Alliance Data Systems

Park Hotels Resorts

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Park Hotels Resorts are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Park Hotels is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Alliance Data Systems

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Data Systems are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Alliance Data is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Park Hotels and Alliance Data

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

The idea behind Park Hotels Resorts and Alliance Data Systems 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.