Correlation Between SLM Corp and Synchrony Financial

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

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

Diversification Opportunities for SLM Corp and Synchrony Financial

0.03

Correlation Coefficient

SLM Corp  Synchrony Financial

Significant diversification

The 3 months correlation between SLM and Synchrony is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding SLM Corp and Synchrony Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Synchrony Financial and SLM Corp 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 SLM Corp are associated (or correlated) with Synchrony Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Synchrony Financial has no effect on the direction of SLM Corp i.e., SLM Corp and Synchrony Financial go up and down completely randomly.

Pair Corralation between SLM Corp and Synchrony Financial

Considering the 90-day investment horizon SLM Corp is expected to under-perform the Synchrony Financial. In addition to that, SLM Corp is 1.15 times more volatile than Synchrony Financial. It trades about -0.12 of its total potential returns per unit of risk. Synchrony Financial is currently generating about 0.05 per unit of volatility. If you would invest  1,826  in Synchrony Financial on March 7, 2024 and sell it today you would earn a total of  19.00  from holding Synchrony Financial or generate 1.04% return on investment over 90 days.

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

SLM Corp  vs.  Synchrony Financial

SLM Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SLM Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, SLM Corp is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Synchrony Financial

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with SLM Corp and Synchrony Financial

The main advantage of trading using opposite SLM Corp and Synchrony Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SLM Corp position performs unexpectedly, Synchrony 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 Synchrony Financial will offset losses from the drop in Synchrony Financial's long position.

The idea behind SLM Corp and Synchrony 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.