Correlation Between Sovereign Metals and Alliance Data

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

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

Diversification Opportunities for Sovereign Metals and Alliance Data

0.45

Correlation Coefficient

Sovereign Metals  Alliance Data

Very weak diversification

The 3 months correlation between Sovereign and Alliance is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Sovereign Metals and Alliance Data Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alliance Data Systems and Sovereign Metals 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 Sovereign Metals are associated (or correlated) with Alliance Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alliance Data Systems has no effect on the direction of Sovereign Metals i.e., Sovereign Metals and Alliance Data go up and down completely randomly.

Pair Corralation between Sovereign Metals and Alliance Data

Assuming the 90 days trading horizon Sovereign Metals is expected to generate 0.81 times more return on investment than Alliance Data. However, Sovereign Metals is 1.24 times less risky than Alliance Data. It trades about 0.11 of its potential returns per unit of risk. Alliance Data Systems is currently generating about 0.03 per unit of risk. If you would invest  3,350  in Sovereign Metals on September 2, 2024 and sell it today you would earn a total of  700.00  from holding Sovereign Metals or generate 20.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.97%
Values	Daily Returns

Sovereign Metals  vs.  Alliance Data Systems

Sovereign Metals

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sovereign Metals are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Sovereign Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Alliance Data Systems

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Data Systems are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Alliance Data may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Sovereign Metals and Alliance Data

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

The idea behind Sovereign Metals and Alliance Data Systems 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.