Correlation Between Ally Financial and AGNC Investment

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

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

Diversification Opportunities for Ally Financial and AGNC Investment

0.68

Correlation Coefficient

Ally Financial  AGNC Investment

Poor diversification

The 3 months correlation between Ally and AGNC is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Ally Financial and AGNC Investment Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AGNC Investment Corp and Ally Financial 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 Ally Financial are associated (or correlated) with AGNC Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AGNC Investment Corp has no effect on the direction of Ally Financial i.e., Ally Financial and AGNC Investment go up and down completely randomly.

Pair Corralation between Ally Financial and AGNC Investment

Given the investment horizon of 90 days Ally Financial is expected to generate 1.44 times more return on investment than AGNC Investment. However, Ally Financial is 1.44 times more volatile than AGNC Investment Corp. It trades about 0.04 of its potential returns per unit of risk. AGNC Investment Corp is currently generating about -0.08 per unit of risk. If you would invest  3,918  in Ally Financial on January 26, 2024 and sell it today you would earn a total of  58.00  from holding Ally Financial or generate 1.48% return on investment over 90 days.

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

Ally Financial  vs.  AGNC Investment Corp

Ally Financial

Risk-Adjusted Performance

4 of 100

Modest

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 fairly weak essential indicators, Ally Financial may actually be approaching a critical reversion point that can send shares even higher in May 2024.

AGNC Investment Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AGNC Investment Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, AGNC Investment is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Ally Financial and AGNC Investment

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

The idea behind Ally Financial and AGNC Investment Corp 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.