Correlation Between Barings BDC and Ally Financial

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

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

Diversification Opportunities for Barings BDC and Ally Financial

0.75

Correlation Coefficient

Barings BDC  Ally Financial

Poor diversification

The 3 months correlation between Barings and Ally is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Barings BDC and Ally Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ally Financial and Barings BDC 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 Barings BDC 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 Barings BDC i.e., Barings BDC and Ally Financial go up and down completely randomly.

Pair Corralation between Barings BDC and Ally Financial

Given the investment horizon of 90 days Barings BDC is expected to generate 0.6 times more return on investment than Ally Financial. However, Barings BDC is 1.67 times less risky than Ally Financial. It trades about -0.22 of its potential returns per unit of risk. Ally Financial is currently generating about -0.26 per unit of risk. If you would invest  995.00  in Barings BDC on September 27, 2024 and sell it today you would lose (44.00) from holding Barings BDC or give up 4.42% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Barings BDC  vs.  Ally Financial

Barings BDC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Barings BDC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Barings BDC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 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.

Pair Trading with Barings BDC and Ally Financial

The main advantage of trading using opposite Barings BDC and Ally Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Barings BDC 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.

The idea behind Barings BDC and Ally Financial 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.