Correlation Between WH Smith and Ally Financial

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

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

Diversification Opportunities for WH Smith and Ally Financial

-0.82

Correlation Coefficient

WH Smith  Ally Financial

Pay attention - limited upside

The 3 months correlation between SMWH and Ally is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding WH Smith PLC and Ally Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ally Financial and WH Smith 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 WH Smith PLC 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 WH Smith i.e., WH Smith and Ally Financial go up and down completely randomly.

Pair Corralation between WH Smith and Ally Financial

Assuming the 90 days trading horizon WH Smith PLC is expected to under-perform the Ally Financial. But the stock apears to be less risky and, when comparing its historical volatility, WH Smith PLC is 1.22 times less risky than Ally Financial. The stock trades about -0.15 of its potential returns per unit of risk. The Ally Financial is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,286  in Ally Financial on September 15, 2024 and sell it today you would earn a total of  464.00  from holding Ally Financial or generate 14.12% return on investment over 90 days.

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

WH Smith PLC  vs.  Ally Financial

WH Smith PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WH Smith PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Ally Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ally Financial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Ally Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with WH Smith and Ally Financial

The main advantage of trading using opposite WH Smith and Ally Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WH Smith 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 WH Smith PLC 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 Global Correlations module to find global opportunities by holding instruments from different markets.