Correlation Between Ares Capital and Ares Management

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

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

Diversification Opportunities for Ares Capital and Ares Management

0.94

Correlation Coefficient

Ares Capital  Ares Management

Almost no diversification

The 3 months correlation between Ares and Ares is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Ares Capital and Ares Management LP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares Management LP and Ares Capital 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 Capital are associated (or correlated) with Ares Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ares Management LP has no effect on the direction of Ares Capital i.e., Ares Capital and Ares Management go up and down completely randomly.

Pair Corralation between Ares Capital and Ares Management

Given the investment horizon of 90 days Ares Capital is expected to generate 2.87 times less return on investment than Ares Management. But when comparing it to its historical volatility, Ares Capital is 2.45 times less risky than Ares Management. It trades about 0.18 of its potential returns per unit of risk. Ares Management LP is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  14,112  in Ares Management LP on September 3, 2024 and sell it today you would earn a total of  3,283  from holding Ares Management LP or generate 23.26% return on investment over 90 days.

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

Ares Capital  vs.  Ares Management LP

Ares Capital

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Capital are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile fundamental indicators, Ares Capital may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Ares Management LP

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Management LP are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Ares Management unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ares Capital and Ares Management

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

The idea behind Ares Capital and Ares Management LP 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.