Correlation Between Alliance Data and Datadog

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

Diversification Opportunities for Alliance Data and Datadog

0.87

Correlation Coefficient

Alliance Data  Datadog

Very poor diversification

The 3 months correlation between Alliance and Datadog is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Data Systems and Datadog in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Datadog 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 Datadog. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Datadog has no effect on the direction of Alliance Data i.e., Alliance Data and Datadog go up and down completely randomly.

Pair Corralation between Alliance Data and Datadog

Assuming the 90 days trading horizon Alliance Data is expected to generate 1.69 times less return on investment than Datadog. But when comparing it to its historical volatility, Alliance Data Systems is 1.3 times less risky than Datadog. It trades about 0.18 of its potential returns per unit of risk. Datadog is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  7,721  in Datadog on April 20, 2025 and sell it today you would earn a total of  4,601  from holding Datadog or generate 59.59% return on investment over 90 days.

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

Alliance Data Systems  vs.  Datadog

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.

Datadog

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Datadog are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Datadog reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alliance Data and Datadog

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

The idea behind Alliance Data Systems and Datadog 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.