Correlation Between Bank of America and Ally Financial
Can any of the company-specific risk be diversified away by investing in both Bank of America and Ally Financial 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 Bank of America and Ally Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bank of America and Ally Financial, you can compare the effects of market volatilities on Bank of America and Ally Financial 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 Bank of America with a short position of Ally Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Ally Financial.
Diversification Opportunities for Bank of America and Ally Financial
0.23 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Bank and Ally is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Ally Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ally Financial and Bank of America 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 Bank of America are associated (or correlated) with Ally Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ally Financial has no effect on the direction of Bank of America i.e., Bank of America and Ally Financial go up and down completely randomly.
Pair Corralation between Bank of America and Ally Financial
Considering the 90-day investment horizon Bank of America is expected to generate 1.1 times less return on investment than Ally Financial. But when comparing it to its historical volatility, Bank of America is 1.19 times less risky than Ally Financial. It trades about 0.27 of its potential returns per unit of risk. Ally Financial is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 3,480 in Ally Financial on August 30, 2024 and sell it today you would earn a total of 469.00 from holding Ally Financial or generate 13.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of America vs. Ally Financial
Performance |
| Timeline |
| Bank of America |
| Ally Financial |
Bank of America and Ally Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Ally Financial
The main advantage of trading using opposite Bank of America and Ally Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Ally Financial 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 Ally Financial will offset losses from the drop in Ally Financial's long position.| Bank of America vs. Citigroup | Bank of America vs. Wells Fargo | Bank of America vs. Royal Bank of | Bank of America vs. Nu Holdings |
| Ally Financial vs. American Express | Ally Financial vs. Mastercard | Ally Financial vs. Visa Class A | Ally Financial vs. PayPal Holdings |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
Other Complementary Tools
| Efficient Frontier Plot and analyze your portfolio and positions against risk-return landscape of the market. | |
| ETF Categories List of ETF categories grouped based on various criteria, such as the investment strategy or type of investments | |
| Top Crypto Exchanges Search and analyze digital assets across top global cryptocurrency exchanges | |
| Bollinger Bands Use Bollinger Bands indicator to analyze target price for a given investing horizon | |
| Sectors List of equity sectors categorizing publicly traded companies based on their primary business activities |