Correlation Between Ares Management and Franklin Resources

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

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

Diversification Opportunities for Ares Management and Franklin Resources

0.85

Correlation Coefficient

Ares Management  Franklin Resources

Very poor diversification

The 3 months correlation between Ares and Franklin is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Ares Management LP and Franklin Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Resources 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 LP are associated (or correlated) with Franklin Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Resources has no effect on the direction of Ares Management i.e., Ares Management and Franklin Resources go up and down completely randomly.

Pair Corralation between Ares Management and Franklin Resources

Given the investment horizon of 90 days Ares Management LP is expected to generate 1.09 times more return on investment than Franklin Resources. However, Ares Management is 1.09 times more volatile than Franklin Resources. It trades about 0.22 of its potential returns per unit of risk. Franklin Resources is currently generating about 0.15 per unit of risk. If you would invest  14,112  in Ares Management LP on September 1, 2024 and sell it today you would earn a total of  3,561  from holding Ares Management LP or generate 25.23% return on investment over 90 days.

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

Ares Management LP  vs.  Franklin Resources

Ares Management LP

Risk-Adjusted Performance

17 of 100

Solid

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

Franklin Resources

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Resources are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting technical and fundamental indicators, Franklin Resources displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ares Management and Franklin Resources

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

The idea behind Ares Management LP and Franklin Resources 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.