Correlation Between Small Cap and Ally Financial
Can any of the company-specific risk be diversified away by investing in both Small Cap 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 Small Cap and Ally Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Core and Ally Financial, you can compare the effects of market volatilities on Small Cap 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 Small Cap with a short position of Ally Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Ally Financial.
Diversification Opportunities for Small Cap and Ally Financial
-0.07 | Correlation Coefficient |
Good diversification
The 3 months correlation between Small and Ally is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and Ally Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ally Financial and Small Cap 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 Small Cap Core 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 Small Cap i.e., Small Cap and Ally Financial go up and down completely randomly.
Pair Corralation between Small Cap and Ally Financial
Assuming the 90 days horizon Small Cap is expected to generate 2.13 times less return on investment than Ally Financial. But when comparing it to its historical volatility, Small Cap Core is 1.39 times less risky than Ally Financial. It trades about 0.1 of its potential returns per unit of risk. Ally Financial is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 3,442 in Ally Financial on August 23, 2024 and sell it today you would earn a total of 277.00 from holding Ally Financial or generate 8.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Core vs. Ally Financial
Performance |
| Timeline |
| Small Cap Core |
| Ally Financial |
Small Cap and Ally Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Ally Financial
The main advantage of trading using opposite Small Cap and Ally Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap 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.| Small Cap vs. Vanguard Mid Cap Index | Small Cap vs. Vanguard Total Bond | Small Cap vs. Vanguard Institutional Index | Small Cap vs. Vanguard Total International |
| Ally Financial vs. Small Cap Core | Ally Financial vs. Morningstar Unconstrained Allocation | Ally Financial vs. Mutual Of America | Ally Financial vs. Ep Emerging Markets |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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