Correlation Between Toyota and Ally Financial

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

Diversification Opportunities for Toyota and Ally Financial

0.51
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Toyota and Ally is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and Ally Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ally Financial and Toyota 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 Toyota Motor Corp 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 Toyota i.e., Toyota and Ally Financial go up and down completely randomly.

Pair Corralation between Toyota and Ally Financial

Assuming the 90 days trading horizon Toyota Motor Corp is expected to under-perform the Ally Financial. But the stock apears to be less risky and, when comparing its historical volatility, Toyota Motor Corp is 1.38 times less risky than Ally Financial. The stock trades about -0.03 of its potential returns per unit of risk. The Ally Financial is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  4,048  in Ally Financial on September 5, 2024 and sell it today you would lose (147.00) from holding Ally Financial or give up 3.63% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Toyota Motor Corp  vs.  Ally Financial

 Performance 
       Timeline  
Toyota Motor Corp 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Toyota Motor Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Toyota is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.
Ally Financial 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Ally Financial has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Toyota and Ally Financial Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Toyota and Ally Financial

The main advantage of trading using opposite Toyota and Ally Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toyota 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 Toyota Motor Corp 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.
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 the Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.

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