Correlation Between Ally Financial and Mastercard

Can any of the company-specific risk be diversified away by investing in both Ally Financial and Mastercard 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 Mastercard into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ally Financial and Mastercard, you can compare the effects of market volatilities on Ally Financial and Mastercard 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 Mastercard. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ally Financial and Mastercard.

Diversification Opportunities for Ally Financial and Mastercard

-0.08

Correlation Coefficient

Ally Financial  Mastercard

Good diversification

The @@bw1eo months correlation between Ally and Mastercard is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Ally Financial and Mastercard in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mastercard 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 Mastercard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mastercard has no effect on the direction of Ally Financial i.e., Ally Financial and Mastercard go up and down completely randomly.

Pair Corralation between Ally Financial and Mastercard

Given the investment horizon of 90 days Ally Financial is expected to generate 2.2 times more return on investment than Mastercard. However, Ally Financial is 2.2 times more volatile than Mastercard. It trades about 0.1 of its potential returns per unit of risk. Mastercard is currently generating about 0.07 per unit of risk. If you would invest  2,433  in Ally Financial on February 3, 2024 and sell it today you would earn a total of  1,504  from holding Ally Financial or generate 61.82% return on investment over 90 days.

Time Period	@@bw1EO Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Ally Financial  vs.  Mastercard

Ally Financial

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ally Financial are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Mastercard

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mastercard has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Ally Financial and Mastercard

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

The idea behind Ally Financial and Mastercard 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.

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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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.