Correlation Between Deluxe and Advantage Solutions

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

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

Diversification Opportunities for Deluxe and Advantage Solutions

0.56

Correlation Coefficient

Deluxe  Advantage Solutions

Very weak diversification

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

Pair Corralation between Deluxe and Advantage Solutions

Considering the 90-day investment horizon Deluxe is expected to under-perform the Advantage Solutions. But the stock apears to be less risky and, when comparing its historical volatility, Deluxe is 1.36 times less risky than Advantage Solutions. The stock trades about -0.22 of its potential returns per unit of risk. The Advantage Solutions is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest  356.00  in Advantage Solutions on November 28, 2024 and sell it today you would lose (97.00) from holding Advantage Solutions or give up 27.25% of portfolio value over 90 days.

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

Deluxe  vs.  Advantage Solutions

Deluxe

Risk-Adjusted Performance

Very Weak

Over the last 90 days Deluxe has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's essential indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Advantage Solutions

Risk-Adjusted Performance

Very Weak

Over the last 90 days Advantage Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's fundamental indicators remain fairly stable which may send shares a bit higher in March 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Deluxe and Advantage Solutions

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

The idea behind Deluxe and Advantage Solutions 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.