Correlation Between Alliance Data and DATATEC

Can any of the company-specific risk be diversified away by investing in both Alliance Data and DATATEC 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 DATATEC 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 DATATEC LTD 2, you can compare the effects of market volatilities on Alliance Data and DATATEC 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 DATATEC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alliance Data and DATATEC.

Diversification Opportunities for Alliance Data and DATATEC

0.78

Correlation Coefficient

Alliance Data  DATATEC

Poor diversification

The 3 months correlation between Alliance and DATATEC is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Data Systems and DATATEC LTD 2 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DATATEC LTD 2 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 DATATEC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DATATEC LTD 2 has no effect on the direction of Alliance Data i.e., Alliance Data and DATATEC go up and down completely randomly.

Pair Corralation between Alliance Data and DATATEC

Assuming the 90 days trading horizon Alliance Data is expected to generate 1.1 times less return on investment than DATATEC. In addition to that, Alliance Data is 1.27 times more volatile than DATATEC LTD 2. It trades about 0.15 of its total potential returns per unit of risk. DATATEC LTD 2 is currently generating about 0.21 per unit of volatility. If you would invest  355.00  in DATATEC LTD 2 on October 22, 2024 and sell it today you would earn a total of  119.00  from holding DATATEC LTD 2 or generate 33.52% 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.  DATATEC LTD 2

Alliance Data Systems

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Data Systems are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental indicators, Alliance Data unveiled solid returns over the last few months and may actually be approaching a breakup point.

DATATEC LTD 2

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in DATATEC LTD 2 are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, DATATEC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alliance Data and DATATEC

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

The idea behind Alliance Data Systems and DATATEC LTD 2 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.