Correlation Between SoFi Technologies and Ally Financial

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

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

Diversification Opportunities for SoFi Technologies and Ally Financial

-0.45

Correlation Coefficient

SoFi Technologies  Ally Financial

Very good diversification

The 3 months correlation between SoFi and Ally is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding SoFi Technologies and Ally Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ally Financial and SoFi Technologies 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 SoFi Technologies 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 SoFi Technologies i.e., SoFi Technologies and Ally Financial go up and down completely randomly.

Pair Corralation between SoFi Technologies and Ally Financial

Given the investment horizon of 90 days SoFi Technologies is expected to generate 1.16 times less return on investment than Ally Financial. In addition to that, SoFi Technologies is 1.75 times more volatile than Ally Financial. It trades about 0.03 of its total potential returns per unit of risk. Ally Financial is currently generating about 0.06 per unit of volatility. If you would invest  2,820  in Ally Financial on January 31, 2024 and sell it today you would earn a total of  1,015  from holding Ally Financial or generate 35.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

SoFi Technologies  vs.  Ally Financial

SoFi Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SoFi Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, SoFi Technologies is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

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 SoFi Technologies and Ally Financial

The main advantage of trading using opposite SoFi Technologies and Ally Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SoFi Technologies 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 SoFi Technologies 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.