Correlation Between KRAKATAU STEEL and Ares Management

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

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

Diversification Opportunities for KRAKATAU STEEL and Ares Management

0.66

Correlation Coefficient

KRAKATAU STEEL  Ares Management

Poor diversification

The 3 months correlation between KRAKATAU and Ares is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding KRAKATAU STEEL B and Ares Management Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares Management Corp and KRAKATAU STEEL 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 KRAKATAU STEEL B 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 Corp has no effect on the direction of KRAKATAU STEEL i.e., KRAKATAU STEEL and Ares Management go up and down completely randomly.

Pair Corralation between KRAKATAU STEEL and Ares Management

Assuming the 90 days trading horizon KRAKATAU STEEL is expected to generate 1.41 times less return on investment than Ares Management. In addition to that, KRAKATAU STEEL is 3.76 times more volatile than Ares Management Corp. It trades about 0.02 of its total potential returns per unit of risk. Ares Management Corp is currently generating about 0.12 per unit of volatility. If you would invest  6,031  in Ares Management Corp on September 20, 2024 and sell it today you would earn a total of  10,831  from holding Ares Management Corp or generate 179.59% return on investment over 90 days.

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

KRAKATAU STEEL B   vs.  Ares Management Corp

KRAKATAU STEEL B

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in KRAKATAU STEEL B are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward-looking signals, KRAKATAU STEEL unveiled solid returns over the last few months and may actually be approaching a breakup point.

Ares Management Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Management Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Ares Management reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KRAKATAU STEEL and Ares Management

The main advantage of trading using opposite KRAKATAU STEEL and Ares Management positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KRAKATAU STEEL 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 KRAKATAU STEEL B and Ares Management Corp 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.