Correlation Between Information Services and Alliance Data

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

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

Diversification Opportunities for Information Services and Alliance Data

-0.53

Correlation Coefficient

Information Services  Alliance Data

Excellent diversification

The 3 months correlation between Information and Alliance is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Information Services Internati 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 Information Services 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 Information Services International Dentsu 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 Information Services i.e., Information Services and Alliance Data go up and down completely randomly.

Pair Corralation between Information Services and Alliance Data

Assuming the 90 days horizon Information Services International Dentsu is expected to generate 0.83 times more return on investment than Alliance Data. However, Information Services International Dentsu is 1.21 times less risky than Alliance Data. It trades about 0.08 of its potential returns per unit of risk. Alliance Data Systems is currently generating about -0.16 per unit of risk. If you would invest  3,540  in Information Services International Dentsu on December 24, 2024 and sell it today you would earn a total of  300.00  from holding Information Services International Dentsu or generate 8.47% return on investment over 90 days.

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

Information Services Internati  vs.  Alliance Data Systems

Information Services

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Information Services International Dentsu are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Information Services may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 uncertain performance in the last few months, the Stock's fundamental 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 Information Services and Alliance Data

The main advantage of trading using opposite Information Services and Alliance Data positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Information Services 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 Information Services International Dentsu 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.