Correlation Between CVS Health and Ally Financial

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

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

Diversification Opportunities for CVS Health and Ally Financial

0.0

Correlation Coefficient

CVS Health  Ally Financial

Pay attention - limited upside

The 3 months correlation between CVS and Ally is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health Corp and Ally Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ally Financial and CVS Health 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 CVS Health 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 CVS Health i.e., CVS Health and Ally Financial go up and down completely randomly.

Pair Corralation between CVS Health and Ally Financial

Assuming the 90 days trading horizon CVS Health Corp is expected to under-perform the Ally Financial. In addition to that, CVS Health is 1.51 times more volatile than Ally Financial. It trades about -0.52 of its total potential returns per unit of risk. Ally Financial is currently generating about -0.27 per unit of volatility. If you would invest  3,846  in Ally Financial on October 6, 2024 and sell it today you would lose (307.00) from holding Ally Financial or give up 7.98% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

CVS Health Corp  vs.  Ally Financial

CVS Health Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS Health Corp 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 February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Ally Financial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ally Financial are ranked lower than 1 (%) 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.

Pair Trading with CVS Health and Ally Financial

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

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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.