Correlation Between Ally Financial and Verizon Communications
Can any of the company-specific risk be diversified away by investing in both Ally Financial and Verizon Communications 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 Ally Financial and Verizon Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ally Financial and Verizon Communications, you can compare the effects of market volatilities on Ally Financial and Verizon Communications 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 Ally Financial with a short position of Verizon Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ally Financial and Verizon Communications.
Diversification Opportunities for Ally Financial and Verizon Communications
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Ally and Verizon is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Ally Financial and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and Ally Financial 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 Ally Financial are associated (or correlated) with Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of Ally Financial i.e., Ally Financial and Verizon Communications go up and down completely randomly.
Pair Corralation between Ally Financial and Verizon Communications
Assuming the 90 days trading horizon Ally Financial is expected to generate 13.3 times more return on investment than Verizon Communications. However, Ally Financial is 13.3 times more volatile than Verizon Communications. It trades about 0.1 of its potential returns per unit of risk. Verizon Communications is currently generating about -0.1 per unit of risk. If you would invest 3,579 in Ally Financial on November 8, 2024 and sell it today you would earn a total of 236.00 from holding Ally Financial or generate 6.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 91.3% |
| Values | Daily Returns |
Ally Financial vs. Verizon Communications
Performance |
| Timeline |
| Ally Financial |
| Verizon Communications |
Ally Financial and Verizon Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ally Financial and Verizon Communications
The main advantage of trading using opposite Ally Financial and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ally Financial position performs unexpectedly, Verizon Communications 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 Verizon Communications will offset losses from the drop in Verizon Communications' long position.| Ally Financial vs. Charter Communications Cl | Ally Financial vs. Ondine Biomedical | Ally Financial vs. Spirent Communications plc | Ally Financial vs. Tata Steel Limited |
| Verizon Communications vs. AfriTin Mining | Verizon Communications vs. First Majestic Silver | Verizon Communications vs. Fortuna Silver Mines | Verizon Communications vs. New Residential 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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