Correlation Between Alliance Data and Canadian National

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

Diversification Opportunities for Alliance Data and Canadian National

0.65

Correlation Coefficient

Alliance Data  Canadian National

Poor diversification

The 3 months correlation between Alliance and Canadian is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Data Systems and Canadian National Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian National Railway 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 Canadian National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian National Railway has no effect on the direction of Alliance Data i.e., Alliance Data and Canadian National go up and down completely randomly.

Pair Corralation between Alliance Data and Canadian National

Assuming the 90 days trading horizon Alliance Data Systems is expected to generate 1.67 times more return on investment than Canadian National. However, Alliance Data is 1.67 times more volatile than Canadian National Railway. It trades about 0.01 of its potential returns per unit of risk. Canadian National Railway is currently generating about 0.01 per unit of risk. If you would invest  4,578  in Alliance Data Systems on March 21, 2025 and sell it today you would lose (39.00) from holding Alliance Data Systems or give up 0.85% 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.  Canadian National Railway

Alliance Data Systems

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Data Systems are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, Alliance Data is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Canadian National Railway

Risk-Adjusted Performance

Very Weak

Over the last 90 days Canadian National Railway has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Canadian National is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Alliance Data and Canadian National

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

The idea behind Alliance Data Systems and Canadian National Railway 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.