Correlation Between Ally Financial and Upstart Holdings

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

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

Diversification Opportunities for Ally Financial and Upstart Holdings

0.4

Correlation Coefficient

Ally Financial  Upstart Holdings

Very weak diversification

The 3 months correlation between Ally and Upstart is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Ally Financial and Upstart Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Upstart Holdings 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 Upstart Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Upstart Holdings has no effect on the direction of Ally Financial i.e., Ally Financial and Upstart Holdings go up and down completely randomly.

Pair Corralation between Ally Financial and Upstart Holdings

Given the investment horizon of 90 days Ally Financial is expected to under-perform the Upstart Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Ally Financial is 3.5 times less risky than Upstart Holdings. The stock trades about -0.05 of its potential returns per unit of risk. The Upstart Holdings is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  7,843  in Upstart Holdings on November 27, 2024 and sell it today you would lose (1,152) from holding Upstart Holdings or give up 14.69% of portfolio value over 90 days.

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

Ally Financial  vs.  Upstart Holdings

Ally Financial

Risk-Adjusted Performance

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 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.

Upstart Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Upstart Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Upstart Holdings is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Ally Financial and Upstart Holdings

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

The idea behind Ally Financial and Upstart Holdings 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.