Correlation Between KKR Real and Ares Commercial

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

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

Diversification Opportunities for KKR Real and Ares Commercial

0.35

Correlation Coefficient

KKR Real  Ares Commercial

Weak diversification

The 3 months correlation between KKR and Ares is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding KKR Real Estate and Ares Commercial Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares Commercial Real and KKR Real 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 KKR Real Estate are associated (or correlated) with Ares Commercial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ares Commercial Real has no effect on the direction of KKR Real i.e., KKR Real and Ares Commercial go up and down completely randomly.

Pair Corralation between KKR Real and Ares Commercial

Given the investment horizon of 90 days KKR Real is expected to generate 2.22 times less return on investment than Ares Commercial. But when comparing it to its historical volatility, KKR Real Estate is 1.55 times less risky than Ares Commercial. It trades about 0.04 of its potential returns per unit of risk. Ares Commercial Real is currently generating about 0.05 of returns per unit of risk over similar time horizon. 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	Very Weak
Accuracy	100.0%
Values	Daily Returns

KKR Real Estate  vs.  Ares Commercial Real

KKR Real Estate

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KKR Real Estate are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, KKR Real is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

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.

Pair Trading with KKR Real and Ares Commercial

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

The idea behind KKR Real Estate and Ares Commercial Real 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.