Correlation Between Capital One and Ally Financial

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

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

Diversification Opportunities for Capital One and Ally Financial

0.89

Correlation Coefficient

Capital One  Ally Financial

Very poor diversification

The 3 months correlation between Capital and Ally is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Ally Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ally Financial and Capital One 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 Capital One Financial 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 Capital One i.e., Capital One and Ally Financial go up and down completely randomly.

Pair Corralation between Capital One and Ally Financial

Considering the 90-day investment horizon Capital One is expected to generate 1.26 times less return on investment than Ally Financial. But when comparing it to its historical volatility, Capital One Financial is 1.38 times less risky than Ally Financial. It trades about 0.09 of its potential returns per unit of risk. Ally Financial is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,866  in Ally Financial on January 31, 2024 and sell it today you would earn a total of  1,050  from holding Ally Financial or generate 36.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Capital One Financial  vs.  Ally Financial

Capital One Financial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Capital One may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Ally Financial

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ally Financial are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Ally Financial may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Capital One and Ally Financial

The main advantage of trading using opposite Capital One and Ally Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital One 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 Capital One Financial 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.