Correlation Between Westlake Chemical and Ally Financial

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

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

Diversification Opportunities for Westlake Chemical and Ally Financial

-0.56

Correlation Coefficient

Westlake Chemical  Ally Financial

Excellent diversification

The 3 months correlation between Westlake and Ally is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Westlake Chemical Corp and Ally Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ally Financial and Westlake Chemical 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 Westlake Chemical 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 Westlake Chemical i.e., Westlake Chemical and Ally Financial go up and down completely randomly.

Pair Corralation between Westlake Chemical and Ally Financial

Assuming the 90 days trading horizon Westlake Chemical is expected to generate 22.27 times less return on investment than Ally Financial. But when comparing it to its historical volatility, Westlake Chemical Corp is 1.09 times less risky than Ally Financial. It trades about 0.0 of its potential returns per unit of risk. Ally Financial is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,577  in Ally Financial on September 12, 2024 and sell it today you would earn a total of  1,275  from holding Ally Financial or generate 49.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	80.36%
Values	Daily Returns

Westlake Chemical Corp  vs.  Ally Financial

Westlake Chemical Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Westlake Chemical Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Ally Financial

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ally Financial are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Ally Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Westlake Chemical and Ally Financial

The main advantage of trading using opposite Westlake Chemical and Ally Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Westlake Chemical 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 Westlake Chemical 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.