Correlation Between Future Metals and Alliance Data

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

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

Diversification Opportunities for Future Metals and Alliance Data

-0.4

Correlation Coefficient

Future Metals  Alliance Data

Very good diversification

The 3 months correlation between Future and Alliance is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Future Metals NL 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 Future Metals 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 Future Metals NL 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 Future Metals i.e., Future Metals and Alliance Data go up and down completely randomly.

Pair Corralation between Future Metals and Alliance Data

Assuming the 90 days trading horizon Future Metals NL is expected to under-perform the Alliance Data. In addition to that, Future Metals is 1.77 times more volatile than Alliance Data Systems. It trades about -0.05 of its total potential returns per unit of risk. Alliance Data Systems is currently generating about -0.06 per unit of volatility. If you would invest  6,017  in Alliance Data Systems on December 4, 2024 and sell it today you would lose (512.00) from holding Alliance Data Systems or give up 8.51% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	91.8%
Values	Daily Returns

Future Metals NL  vs.  Alliance Data Systems

Future Metals NL

Risk-Adjusted Performance

Very Weak

Over the last 90 days Future Metals NL 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 technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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 latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Future Metals and Alliance Data

The main advantage of trading using opposite Future Metals and Alliance Data positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Future Metals 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 Future Metals NL 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.