Correlation Between Reliance Industries and Ally Financial

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

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

Diversification Opportunities for Reliance Industries and Ally Financial

0.06

Correlation Coefficient

Reliance Industries  Ally Financial

Significant diversification

The 3 months correlation between Reliance and Ally is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industries Ltd and Ally Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ally Financial and Reliance Industries 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 Reliance Industries Ltd 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 Reliance Industries i.e., Reliance Industries and Ally Financial go up and down completely randomly.

Pair Corralation between Reliance Industries and Ally Financial

Assuming the 90 days trading horizon Reliance Industries is expected to generate 10.52 times less return on investment than Ally Financial. But when comparing it to its historical volatility, Reliance Industries Ltd is 9.29 times less risky than Ally Financial. It trades about 0.05 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 30, 2024 and sell it today you would earn a total of  140.00  from holding Ally Financial or generate 3.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.92%
Values	Daily Returns

Reliance Industries Ltd  vs.  Ally Financial

Reliance Industries

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Industries Ltd are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Reliance Industries is not utilizing all of its potentials. The latest 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 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 Reliance Industries and Ally Financial

The main advantage of trading using opposite Reliance Industries and Ally Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reliance Industries 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 Reliance Industries Ltd 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..