Correlation Between Trainline Plc and Ally Financial

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

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

Diversification Opportunities for Trainline Plc and Ally Financial

-0.05

Correlation Coefficient

Trainline Plc  Ally Financial

Good diversification

The 3 months correlation between Trainline and Ally is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Trainline Plc and Ally Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ally Financial and Trainline Plc 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 Trainline Plc 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 Trainline Plc i.e., Trainline Plc and Ally Financial go up and down completely randomly.

Pair Corralation between Trainline Plc and Ally Financial

Assuming the 90 days trading horizon Trainline Plc is expected to under-perform the Ally Financial. But the stock apears to be less risky and, when comparing its historical volatility, Trainline Plc is 5.91 times less risky than Ally Financial. The stock trades about -0.09 of its potential returns per unit of risk. The Ally Financial is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,531  in Ally Financial on November 19, 2024 and sell it today you would earn a total of  263.00  from holding Ally Financial or generate 7.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.65%
Values	Daily Returns

Trainline Plc  vs.  Ally Financial

Trainline Plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Trainline Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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 Trainline Plc and Ally Financial

The main advantage of trading using opposite Trainline Plc and Ally Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Trainline Plc 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 Trainline Plc 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.