Correlation Between MTI Wireless and Ally Financial

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

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

Diversification Opportunities for MTI Wireless and Ally Financial

-0.23

Correlation Coefficient

MTI Wireless  Ally Financial

Very good diversification

The 3 months correlation between MTI and Ally is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding MTI Wireless Edge and Ally Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ally Financial and MTI Wireless 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 MTI Wireless Edge 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 MTI Wireless i.e., MTI Wireless and Ally Financial go up and down completely randomly.

Pair Corralation between MTI Wireless and Ally Financial

Assuming the 90 days trading horizon MTI Wireless is expected to generate 1.56 times less return on investment than Ally Financial. But when comparing it to its historical volatility, MTI Wireless Edge is 3.83 times less risky than Ally Financial. It trades about 0.14 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  3,561  in Ally Financial on December 28, 2024 and sell it today you would earn a total of  180.00  from holding Ally Financial or generate 5.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.31%
Values	Daily Returns

MTI Wireless Edge  vs.  Ally Financial

MTI Wireless Edge

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MTI Wireless Edge are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, MTI Wireless 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 unsteady basic indicators, Ally Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MTI Wireless and Ally Financial

The main advantage of trading using opposite MTI Wireless and Ally Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MTI Wireless 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 MTI Wireless Edge 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.

Check out your portfolio center.

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.