Correlation Between Ares Management and PulteGroup

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

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

Diversification Opportunities for Ares Management and PulteGroup

0.2

Correlation Coefficient

Ares Management  PulteGroup

Modest diversification

The 3 months correlation between Ares and PulteGroup is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Ares Management Corp and PulteGroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PulteGroup and Ares Management 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 Ares Management Corp are associated (or correlated) with PulteGroup. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PulteGroup has no effect on the direction of Ares Management i.e., Ares Management and PulteGroup go up and down completely randomly.

Pair Corralation between Ares Management and PulteGroup

Assuming the 90 days horizon Ares Management Corp is expected to generate 0.97 times more return on investment than PulteGroup. However, Ares Management Corp is 1.03 times less risky than PulteGroup. It trades about 0.2 of its potential returns per unit of risk. PulteGroup is currently generating about 0.1 per unit of risk. If you would invest  12,670  in Ares Management Corp on September 4, 2024 and sell it today you would earn a total of  3,782  from holding Ares Management Corp or generate 29.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Ares Management Corp  vs.  PulteGroup

Ares Management Corp

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Management Corp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Ares Management reported solid returns over the last few months and may actually be approaching a breakup point.

PulteGroup

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PulteGroup are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PulteGroup reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ares Management and PulteGroup

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

The idea behind Ares Management Corp and PulteGroup 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.