Correlation Between Alliance Data and NORTHEAST UTILITIES

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

Diversification Opportunities for Alliance Data and NORTHEAST UTILITIES

-0.06

Correlation Coefficient

Alliance Data  NORTHEAST UTILITIES

Good diversification

The 3 months correlation between Alliance and NORTHEAST is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Data Systems and NORTHEAST UTILITIES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NORTHEAST UTILITIES 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 NORTHEAST UTILITIES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NORTHEAST UTILITIES has no effect on the direction of Alliance Data i.e., Alliance Data and NORTHEAST UTILITIES go up and down completely randomly.

Pair Corralation between Alliance Data and NORTHEAST UTILITIES

Assuming the 90 days trading horizon Alliance Data Systems is expected to under-perform the NORTHEAST UTILITIES. In addition to that, Alliance Data is 1.41 times more volatile than NORTHEAST UTILITIES. It trades about -0.12 of its total potential returns per unit of risk. NORTHEAST UTILITIES is currently generating about 0.04 per unit of volatility. If you would invest  5,436  in NORTHEAST UTILITIES on December 25, 2024 and sell it today you would earn a total of  214.00  from holding NORTHEAST UTILITIES or generate 3.94% return on investment over 90 days.

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

Alliance Data Systems  vs.  NORTHEAST UTILITIES

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 fragile 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.

NORTHEAST UTILITIES

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NORTHEAST UTILITIES are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward-looking indicators, NORTHEAST UTILITIES is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Alliance Data and NORTHEAST UTILITIES

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

The idea behind Alliance Data Systems and NORTHEAST UTILITIES 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.