Correlation Between Alliance Data and Tri Pointe

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

Diversification Opportunities for Alliance Data and Tri Pointe

0.67

Correlation Coefficient

Alliance Data  Tri Pointe

Poor diversification

The 3 months correlation between Alliance and Tri is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Data Systems and Tri Pointe Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tri Pointe Homes 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 Tri Pointe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tri Pointe Homes has no effect on the direction of Alliance Data i.e., Alliance Data and Tri Pointe go up and down completely randomly.

Pair Corralation between Alliance Data and Tri Pointe

Assuming the 90 days trading horizon Alliance Data Systems is expected to under-perform the Tri Pointe. In addition to that, Alliance Data is 1.02 times more volatile than Tri Pointe Homes. It trades about -0.16 of its total potential returns per unit of risk. Tri Pointe Homes is currently generating about -0.13 per unit of volatility. If you would invest  3,520  in Tri Pointe Homes on December 22, 2024 and sell it today you would lose (640.00) from holding Tri Pointe Homes or give up 18.18% of portfolio value over 90 days.

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

Alliance Data Systems  vs.  Tri Pointe Homes

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.

Tri Pointe Homes

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tri Pointe Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Alliance Data and Tri Pointe

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

The idea behind Alliance Data Systems and Tri Pointe Homes 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.