Correlation Between Ares Capital and Transurban

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

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

Diversification Opportunities for Ares Capital and Transurban

-0.69

Correlation Coefficient

Ares Capital  Transurban

Excellent diversification

The 3 months correlation between Ares and Transurban is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Ares Capital and Transurban Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transurban Group 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 Transurban. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transurban Group has no effect on the direction of Ares Capital i.e., Ares Capital and Transurban go up and down completely randomly.

Pair Corralation between Ares Capital and Transurban

Given the investment horizon of 90 days Ares Capital is expected to generate 0.27 times more return on investment than Transurban. However, Ares Capital is 3.74 times less risky than Transurban. It trades about 0.22 of its potential returns per unit of risk. Transurban Group is currently generating about -0.09 per unit of risk. If you would invest  2,020  in Ares Capital on September 12, 2024 and sell it today you would earn a total of  186.00  from holding Ares Capital or generate 9.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Ares Capital  vs.  Transurban Group

Ares Capital

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Capital are ranked lower than 17 (%) 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.

Transurban Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transurban Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Ares Capital and Transurban

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

The idea behind Ares Capital and Transurban Group 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.