Correlation Between Ares Management and Fanhua

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

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

Diversification Opportunities for Ares Management and Fanhua

-0.68

Correlation Coefficient

Ares Management  Fanhua

Excellent diversification

The 3 months correlation between Ares and Fanhua is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Ares Management Corp and Fanhua Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fanhua Inc 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 Corp are associated (or correlated) with Fanhua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fanhua Inc has no effect on the direction of Ares Management i.e., Ares Management and Fanhua go up and down completely randomly.

Pair Corralation between Ares Management and Fanhua

Assuming the 90 days horizon Ares Management Corp is expected to generate 0.35 times more return on investment than Fanhua. However, Ares Management Corp is 2.88 times less risky than Fanhua. It trades about -0.08 of its potential returns per unit of risk. Fanhua Inc is currently generating about -0.37 per unit of risk. If you would invest  17,404  in Ares Management Corp on October 12, 2024 and sell it today you would lose (574.00) from holding Ares Management Corp or give up 3.3% of portfolio value over 90 days.

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

Ares Management Corp  vs.  Fanhua Inc

Ares Management Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Management Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Ares Management reported solid returns over the last few months and may actually be approaching a breakup point.

Fanhua Inc

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Ares Management and Fanhua

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

The idea behind Ares Management Corp and Fanhua Inc 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.