Correlation Between Ally Financial and SP 500

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Can any of the company-specific risk be diversified away by investing in both Ally Financial and SP 500 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 SP 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ally Financial and SP 500 Technology, you can compare the effects of market volatilities on Ally Financial and SP 500 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 SP 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ally Financial and SP 500.

Diversification Opportunities for Ally Financial and SP 500

0.18
  Correlation Coefficient

Average diversification

The 3 months correlation between Ally Financial and SP 500 is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Ally Financial and SP 500 Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP 500 Technology 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 SP 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP 500 Technology has no effect on the direction of Ally Financial i.e., Ally Financial and SP 500 go up and down completely randomly.

Pair Corralation between Ally Financial and SP 500

Given the investment horizon of 90 days Ally Financial is expected to generate 1.79 times less return on investment than SP 500. In addition to that, Ally Financial is 1.59 times more volatile than SP 500 Technology. It trades about 0.14 of its total potential returns per unit of risk. SP 500 Technology is currently generating about 0.4 per unit of volatility. If you would invest  13,110  in SP 500 Technology on May 19, 2022 and sell it today you would earn a total of  2,005  from holding SP 500 Technology or generate 15.29% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Ally Financial  vs.  SP 500 Technology

 Performance (%) 
       Timeline  
Ally Financial 
Ally Financial Performance
0 of 100
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 new stock price disturbance, may contribute to short-term losses for the investors.

Ally Financial Price Channel

SP 500 Technology 
SP 500 Performance
10 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in SP 500 Technology are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak essential indicators, SP 500 demonstrated solid returns over the last few months and may actually be approaching a breakup point.

SP 500 Price Channel

Ally Financial and SP 500 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ally Financial and SP 500

The main advantage of trading using opposite Ally Financial and SP 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ally Financial position performs unexpectedly, SP 500 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 SP 500 will offset losses from the drop in SP 500's long position.
The idea behind Ally Financial and SP 500 Technology 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.

SP 500 Technology

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The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against SP 500 as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. SP 500's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, SP 500's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to SP 500 Technology.
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.

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