Correlation Between Ares Capital and Golub Capital

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

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

Diversification Opportunities for Ares Capital and Golub Capital

0.91

Correlation Coefficient

Ares Capital  Golub Capital

Almost no diversification

The 3 months correlation between Ares and Golub is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Ares Capital and Golub Capital BDC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Golub Capital BDC 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 Golub Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Golub Capital BDC has no effect on the direction of Ares Capital i.e., Ares Capital and Golub Capital go up and down completely randomly.

Pair Corralation between Ares Capital and Golub Capital

Given the investment horizon of 90 days Ares Capital is expected to generate 1.11 times less return on investment than Golub Capital. But when comparing it to its historical volatility, Ares Capital is 1.04 times less risky than Golub Capital. It trades about 0.07 of its potential returns per unit of risk. Golub Capital BDC is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,058  in Golub Capital BDC on September 25, 2024 and sell it today you would earn a total of  450.00  from holding Golub Capital BDC or generate 42.53% 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.  Golub Capital BDC

Ares Capital

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Capital are ranked lower than 12 (%) 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.

Golub Capital BDC

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Golub Capital BDC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Golub Capital is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Ares Capital and Golub Capital

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

The idea behind Ares Capital and Golub Capital BDC 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.