Correlation Between Alliance Data and CN DATANG

Can any of the company-specific risk be diversified away by investing in both Alliance Data and CN DATANG 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 CN DATANG 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 CN DATANG C, you can compare the effects of market volatilities on Alliance Data and CN DATANG 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 CN DATANG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alliance Data and CN DATANG.

Diversification Opportunities for Alliance Data and CN DATANG

0.72

Correlation Coefficient

Alliance Data  CN DATANG

Poor diversification

The 3 months correlation between Alliance and DT7 is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Data Systems and CN DATANG C in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CN DATANG C 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 CN DATANG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CN DATANG C has no effect on the direction of Alliance Data i.e., Alliance Data and CN DATANG go up and down completely randomly.

Pair Corralation between Alliance Data and CN DATANG

Assuming the 90 days trading horizon Alliance Data Systems is expected to under-perform the CN DATANG. But the stock apears to be less risky and, when comparing its historical volatility, Alliance Data Systems is 1.14 times less risky than CN DATANG. The stock trades about -0.17 of its potential returns per unit of risk. The CN DATANG C is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  24.00  in CN DATANG C on October 10, 2024 and sell it today you would earn a total of  0.00  from holding CN DATANG C or generate 0.0% return on investment over 90 days.

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

Alliance Data Systems  vs.  CN DATANG C

Alliance Data Systems

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Data Systems are ranked lower than 12 (%) 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.

CN DATANG C

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CN DATANG C are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, CN DATANG unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alliance Data and CN DATANG

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

The idea behind Alliance Data Systems and CN DATANG C 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.