Correlation Between European Metals and Ally Financial

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

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

Diversification Opportunities for European Metals and Ally Financial

-0.28

Correlation Coefficient

European Metals  Ally Financial

Very good diversification

The 3 months correlation between European and Ally is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding European Metals Holdings and Ally Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ally Financial and European Metals 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 European Metals Holdings 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 European Metals i.e., European Metals and Ally Financial go up and down completely randomly.

Pair Corralation between European Metals and Ally Financial

Assuming the 90 days trading horizon European Metals is expected to generate 1.77 times less return on investment than Ally Financial. But when comparing it to its historical volatility, European Metals Holdings is 2.45 times less risky than Ally Financial. It trades about 0.08 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  3,473  in Ally Financial on December 23, 2024 and sell it today you would earn a total of  180.00  from holding Ally Financial or generate 5.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

European Metals Holdings  vs.  Ally Financial

European Metals Holdings

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in European Metals Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, European Metals exhibited solid returns over the last few months and may actually be approaching a breakup point.

Ally Financial

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ally Financial are ranked lower than 4 (%) 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 European Metals and Ally Financial

The main advantage of trading using opposite European Metals and Ally Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if European Metals 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 European Metals Holdings 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.