Correlation Between Ally Financial and CNH Industrial

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

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

Diversification Opportunities for Ally Financial and CNH Industrial

0.61

Correlation Coefficient

Ally Financial  CNH Industrial

Poor diversification

The 3 months correlation between Ally and CNH is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Ally Financial and CNH Industrial NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CNH Industrial NV 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 CNH Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CNH Industrial NV has no effect on the direction of Ally Financial i.e., Ally Financial and CNH Industrial go up and down completely randomly.

Pair Corralation between Ally Financial and CNH Industrial

Assuming the 90 days trading horizon Ally Financial is expected to generate 0.89 times more return on investment than CNH Industrial. However, Ally Financial is 1.13 times less risky than CNH Industrial. It trades about 0.04 of its potential returns per unit of risk. CNH Industrial NV is currently generating about -0.01 per unit of risk. If you would invest  2,450  in Ally Financial on September 28, 2024 and sell it today you would earn a total of  1,139  from holding Ally Financial or generate 46.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.57%
Values	Daily Returns

Ally Financial  vs.  CNH Industrial NV

Ally Financial

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ally Financial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Ally Financial is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

CNH Industrial NV

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CNH Industrial NV are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, CNH Industrial is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Ally Financial and CNH Industrial

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

The idea behind Ally Financial and CNH Industrial NV 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.