Correlation Between Bank of Ireland and Ally Financial

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

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

Diversification Opportunities for Bank of Ireland and Ally Financial

0.04

Correlation Coefficient

Bank of Ireland  Ally Financial

Significant diversification

The 3 months correlation between Bank and Ally is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Ireland and Ally Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ally Financial and Bank of Ireland 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 Bank of Ireland 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 Bank of Ireland i.e., Bank of Ireland and Ally Financial go up and down completely randomly.

Pair Corralation between Bank of Ireland and Ally Financial

Assuming the 90 days trading horizon Bank of Ireland is expected to under-perform the Ally Financial. But the stock apears to be less risky and, when comparing its historical volatility, Bank of Ireland is 1.13 times less risky than Ally Financial. The stock trades about -0.1 of its potential returns per unit of risk. The Ally Financial is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  4,280  in Ally Financial on August 31, 2024 and sell it today you would lose (359.00) from holding Ally Financial or give up 8.39% of portfolio value over 90 days.

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

Bank of Ireland  vs.  Ally Financial

Bank of Ireland

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank of Ireland 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 December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Ally Financial

Risk-Adjusted Performance

0 of 100

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Bank of Ireland and Ally Financial

The main advantage of trading using opposite Bank of Ireland and Ally Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of Ireland 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 Bank of Ireland 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.