Correlation Between Ally Financial and Enova International

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

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

Diversification Opportunities for Ally Financial and Enova International

0.85

Correlation Coefficient

Ally Financial  Enova International

Very poor diversification

The 3 months correlation between Ally and Enova is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Ally Financial and Enova International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enova International and Ally Financial 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 Ally Financial are associated (or correlated) with Enova International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enova International has no effect on the direction of Ally Financial i.e., Ally Financial and Enova International go up and down completely randomly.

Pair Corralation between Ally Financial and Enova International

Given the investment horizon of 90 days Ally Financial is expected to generate 3.38 times less return on investment than Enova International. But when comparing it to its historical volatility, Ally Financial is 1.15 times less risky than Enova International. It trades about 0.04 of its potential returns per unit of risk. Enova International is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  8,374  in Enova International on October 4, 2024 and sell it today you would earn a total of  1,214  from holding Enova International or generate 14.5% return on investment over 90 days.

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

Ally Financial  vs.  Enova International

Ally Financial

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ally Financial are ranked lower than 3 (%) 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.

Enova International

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Enova International are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Enova International sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ally Financial and Enova International

The main advantage of trading using opposite Ally Financial and Enova International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ally Financial position performs unexpectedly, Enova International 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 Enova International will offset losses from the drop in Enova International's long position.

The idea behind Ally Financial and Enova International 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.