Correlation Between Ally Financial and Federal Agricultural

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Can any of the company-specific risk be diversified away by investing in both Ally Financial and Federal Agricultural 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 Federal Agricultural into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ally Financial and Federal Agricultural Mortgage, you can compare the effects of market volatilities on Ally Financial and Federal Agricultural 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 Federal Agricultural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ally Financial and Federal Agricultural.

Diversification Opportunities for Ally Financial and Federal Agricultural

0.43
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Ally and Federal is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Ally Financial and Federal Agricultural Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Agricultural 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 Federal Agricultural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Agricultural has no effect on the direction of Ally Financial i.e., Ally Financial and Federal Agricultural go up and down completely randomly.

Pair Corralation between Ally Financial and Federal Agricultural

Given the investment horizon of 90 days Ally Financial is expected to under-perform the Federal Agricultural. But the stock apears to be less risky and, when comparing its historical volatility, Ally Financial is 1.05 times less risky than Federal Agricultural. The stock trades about -0.11 of its potential returns per unit of risk. The Federal Agricultural Mortgage is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  19,872  in Federal Agricultural Mortgage on November 27, 2024 and sell it today you would earn a total of  937.00  from holding Federal Agricultural Mortgage or generate 4.72% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Ally Financial  vs.  Federal Agricultural Mortgage

 Performance 
       Timeline  
Ally Financial 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Ally Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, Ally Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.
Federal Agricultural 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Federal Agricultural Mortgage has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Federal Agricultural is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Ally Financial and Federal Agricultural Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ally Financial and Federal Agricultural

The main advantage of trading using opposite Ally Financial and Federal Agricultural positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ally Financial position performs unexpectedly, Federal Agricultural 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 Federal Agricultural will offset losses from the drop in Federal Agricultural's long position.
The idea behind Ally Financial and Federal Agricultural Mortgage 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.
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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