Correlation Between Associated British and Alliance Data
Can any of the company-specific risk be diversified away by investing in both Associated British 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 Associated British and Alliance Data into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Associated British Foods and Alliance Data Systems, you can compare the effects of market volatilities on Associated British 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 Associated British with a short position of Alliance Data. Check out your portfolio center. Please also check ongoing floating volatility patterns of Associated British and Alliance Data.
Diversification Opportunities for Associated British and Alliance Data
-0.55 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Associated and Alliance is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Associated British Foods 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 Associated British 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 Associated British Foods 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 Associated British i.e., Associated British and Alliance Data go up and down completely randomly.
Pair Corralation between Associated British and Alliance Data
Assuming the 90 days trading horizon Associated British Foods is expected to under-perform the Alliance Data. But the stock apears to be less risky and, when comparing its historical volatility, Associated British Foods is 1.94 times less risky than Alliance Data. The stock trades about -0.03 of its potential returns per unit of risk. The Alliance Data Systems is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 5,950 in Alliance Data Systems on September 13, 2024 and sell it today you would earn a total of 528.00 from holding Alliance Data Systems or generate 8.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Associated British Foods vs. Alliance Data Systems
Performance |
| Timeline |
| Associated British Foods |
| Alliance Data Systems |
Associated British and Alliance Data Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Associated British and Alliance Data
The main advantage of trading using opposite Associated British and Alliance Data positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Associated British 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.| Associated British vs. Ebro Foods | Associated British vs. Premier Foods PLC | Associated British vs. Cairo Communication SpA | Associated British vs. Gruppo MutuiOnline SpA |
| Alliance Data vs. Empire Metals Limited | Alliance Data vs. Cornish Metals | Alliance Data vs. Cairo Communication SpA | Alliance Data vs. Ebro Foods |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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