Correlation Between Ares Commercial and Annaly Capital

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

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

Diversification Opportunities for Ares Commercial and Annaly Capital

0.62

Correlation Coefficient

Ares Commercial  Annaly Capital

Poor diversification

The 3 months correlation between Ares and Annaly is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Ares Commercial Real and Annaly Capital Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Annaly Capital Management and Ares Commercial 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 Commercial Real are associated (or correlated) with Annaly Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Annaly Capital Management has no effect on the direction of Ares Commercial i.e., Ares Commercial and Annaly Capital go up and down completely randomly.

Pair Corralation between Ares Commercial and Annaly Capital

Given the investment horizon of 90 days Ares Commercial Real is expected to generate 2.03 times more return on investment than Annaly Capital. However, Ares Commercial is 2.03 times more volatile than Annaly Capital Management. It trades about 0.05 of its potential returns per unit of risk. Annaly Capital Management is currently generating about 0.04 per unit of risk. If you would invest  682.00  in Ares Commercial Real on September 3, 2024 and sell it today you would earn a total of  40.00  from holding Ares Commercial Real or generate 5.87% return on investment over 90 days.

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

Ares Commercial Real  vs.  Annaly Capital Management

Ares Commercial Real

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Commercial Real are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Ares Commercial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Annaly Capital Management

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Annaly Capital Management are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Annaly Capital is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ares Commercial and Annaly Capital

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

The idea behind Ares Commercial Real and Annaly Capital Management 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.