Correlation Between Monks Investment and Ally Financial

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

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

Diversification Opportunities for Monks Investment and Ally Financial

0.31

Correlation Coefficient

Monks Investment  Ally Financial

Weak diversification

The 3 months correlation between Monks and Ally is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Monks Investment Trust and Ally Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ally Financial and Monks Investment 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 Monks Investment Trust 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 Monks Investment i.e., Monks Investment and Ally Financial go up and down completely randomly.

Pair Corralation between Monks Investment and Ally Financial

Assuming the 90 days trading horizon Monks Investment is expected to generate 103.57 times less return on investment than Ally Financial. But when comparing it to its historical volatility, Monks Investment Trust is 12.14 times less risky than Ally Financial. It trades about 0.01 of its potential returns per unit of risk. Ally Financial is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3,908  in Ally Financial on December 2, 2024 and sell it today you would lose (202.00) from holding Ally Financial or give up 5.17% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.83%
Values	Daily Returns

Monks Investment Trust  vs.  Ally Financial

Monks Investment Trust

Risk-Adjusted Performance

Very Weak

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

Ally Financial

Risk-Adjusted Performance

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 comparatively unsteady basic indicators, Ally Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Monks Investment and Ally Financial

The main advantage of trading using opposite Monks Investment and Ally Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Monks Investment 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 Monks Investment Trust 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.