Correlation Between Netcapital and Ally Financial

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

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

Diversification Opportunities for Netcapital and Ally Financial

-0.19

Correlation Coefficient

Netcapital  Ally Financial

Good diversification

The 3 months correlation between Netcapital and Ally is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Netcapital and Ally Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ally Financial and Netcapital 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 Netcapital 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 Netcapital i.e., Netcapital and Ally Financial go up and down completely randomly.

Pair Corralation between Netcapital and Ally Financial

Given the investment horizon of 90 days Netcapital is expected to generate 6.45 times more return on investment than Ally Financial. However, Netcapital is 6.45 times more volatile than Ally Financial. It trades about 0.11 of its potential returns per unit of risk. Ally Financial is currently generating about -0.02 per unit of risk. If you would invest  13.00  in Netcapital on February 23, 2024 and sell it today you would earn a total of  4.00  from holding Netcapital or generate 30.77% return on investment over 90 days.

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

Netcapital  vs.  Ally Financial

Netcapital

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Netcapital are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, Netcapital disclosed solid returns over the last few months and may actually be approaching a breakup point.

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

Pair Trading with Netcapital and Ally Financial

The main advantage of trading using opposite Netcapital and Ally Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Netcapital 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 Netcapital 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.