Correlation Between DFS Furniture and Alliance Data

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

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

Diversification Opportunities for DFS Furniture and Alliance Data

0.66

Correlation Coefficient

DFS Furniture  Alliance Data

Poor diversification

The 3 months correlation between DFS and Alliance is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding DFS Furniture PLC 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 DFS Furniture 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 DFS Furniture PLC 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 DFS Furniture i.e., DFS Furniture and Alliance Data go up and down completely randomly.

Pair Corralation between DFS Furniture and Alliance Data

Assuming the 90 days trading horizon DFS Furniture PLC is expected to generate 0.8 times more return on investment than Alliance Data. However, DFS Furniture PLC is 1.24 times less risky than Alliance Data. It trades about 0.24 of its potential returns per unit of risk. Alliance Data Systems is currently generating about 0.18 per unit of risk. If you would invest  147.00  in DFS Furniture PLC on April 22, 2025 and sell it today you would earn a total of  51.00  from holding DFS Furniture PLC or generate 34.69% return on investment over 90 days.

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

DFS Furniture PLC  vs.  Alliance Data Systems

DFS Furniture PLC

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in DFS Furniture PLC are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, DFS Furniture unveiled solid returns over the last few months and may actually be approaching a breakup point.

Alliance Data Systems

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Data Systems are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Alliance Data unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DFS Furniture and Alliance Data

The main advantage of trading using opposite DFS Furniture and Alliance Data positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DFS Furniture 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 DFS Furniture PLC 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.

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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.