Correlation Between Ares Management and Costco Wholesale

Can any of the company-specific risk be diversified away by investing in both Ares Management and Costco Wholesale 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 Costco Wholesale 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 Costco Wholesale, you can compare the effects of market volatilities on Ares Management and Costco Wholesale 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 Costco Wholesale. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ares Management and Costco Wholesale.

Diversification Opportunities for Ares Management and Costco Wholesale

0.8

Correlation Coefficient

Ares Management  Costco Wholesale

Very poor diversification

The 3 months correlation between Ares and Costco is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Ares Management Corp and Costco Wholesale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Costco Wholesale 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 Costco Wholesale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Costco Wholesale has no effect on the direction of Ares Management i.e., Ares Management and Costco Wholesale go up and down completely randomly.

Pair Corralation between Ares Management and Costco Wholesale

Assuming the 90 days horizon Ares Management Corp is expected to generate 1.45 times more return on investment than Costco Wholesale. However, Ares Management is 1.45 times more volatile than Costco Wholesale. It trades about 0.21 of its potential returns per unit of risk. Costco Wholesale is currently generating about 0.13 per unit of risk. If you would invest  12,841  in Ares Management Corp on September 13, 2024 and sell it today you would earn a total of  4,059  from holding Ares Management Corp or generate 31.61% return on investment over 90 days.

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

Ares Management Corp  vs.  Costco Wholesale

Ares Management Corp

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Management Corp are ranked lower than 16 (%) 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.

Costco Wholesale

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Costco Wholesale may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ares Management and Costco Wholesale

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

The idea behind Ares Management Corp and Costco Wholesale 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.