Correlation Between Alliance Data and Align Technology

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

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

Diversification Opportunities for Alliance Data and Align Technology

0.43

Correlation Coefficient

Alliance Data  Align Technology

Very weak diversification

The 3 months correlation between Alliance and Align is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Data Systems and Align Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Align Technology and Alliance Data 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 Alliance Data Systems 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 Alliance Data i.e., Alliance Data and Align Technology go up and down completely randomly.

Pair Corralation between Alliance Data and Align Technology

Assuming the 90 days trading horizon Alliance Data Systems is expected to under-perform the Align Technology. But the stock apears to be less risky and, when comparing its historical volatility, Alliance Data Systems is 1.19 times less risky than Align Technology. The stock trades about -0.19 of its potential returns per unit of risk. The Align Technology is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  22,400  in Align Technology on October 11, 2024 and sell it today you would lose (1,390) from holding Align Technology or give up 6.21% of portfolio value over 90 days.

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

Alliance Data Systems  vs.  Align Technology

Alliance Data Systems

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Data Systems are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Alliance Data unveiled solid returns over the last few months and may actually be approaching a breakup point.

Align Technology

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Align Technology are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Align Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Alliance Data and Align Technology

The main advantage of trading using opposite Alliance Data and Align Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alliance Data 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 Alliance Data Systems 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.