Correlation Between Bread Financial and Align Technology

Can any of the company-specific risk be diversified away by investing in both Bread Financial and Align Technology 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 Bread Financial and Align Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bread Financial Holdings and Align Technology, you can compare the effects of market volatilities on Bread Financial and Align Technology 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 Bread Financial with a short position of Align Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bread Financial and Align Technology.

Diversification Opportunities for Bread Financial and Align Technology

0.56

Correlation Coefficient

Bread Financial  Align Technology

Very weak diversification

The 3 months correlation between Bread and Align is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Bread Financial Holdings and Align Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Align Technology and Bread Financial 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 Bread Financial Holdings are associated (or correlated) with Align Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Align Technology has no effect on the direction of Bread Financial i.e., Bread Financial and Align Technology go up and down completely randomly.

Pair Corralation between Bread Financial and Align Technology

Assuming the 90 days trading horizon Bread Financial Holdings is expected to generate 1.75 times more return on investment than Align Technology. However, Bread Financial is 1.75 times more volatile than Align Technology. It trades about 0.12 of its potential returns per unit of risk. Align Technology is currently generating about -0.01 per unit of risk. If you would invest  6,224  in Bread Financial Holdings on September 26, 2024 and sell it today you would earn a total of  3,396  from holding Bread Financial Holdings or generate 54.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Bread Financial Holdings  vs.  Align Technology

Bread Financial Holdings

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bread Financial Holdings are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain essential indicators, Bread Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Align Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Align Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, Align Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bread Financial and Align Technology

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

The idea behind Bread Financial Holdings and Align Technology 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.