Correlation Between Ares Management and Larsen Toubro

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

Diversification Opportunities for Ares Management and Larsen Toubro

0.5
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Ares and Larsen is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Ares Management Corp and Larsen Toubro Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Larsen Toubro Limited 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 Larsen Toubro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Larsen Toubro Limited has no effect on the direction of Ares Management i.e., Ares Management and Larsen Toubro go up and down completely randomly.

Pair Corralation between Ares Management and Larsen Toubro

Assuming the 90 days horizon Ares Management Corp is expected to generate 1.08 times more return on investment than Larsen Toubro. However, Ares Management is 1.08 times more volatile than Larsen Toubro Limited. It trades about 0.09 of its potential returns per unit of risk. Larsen Toubro Limited is currently generating about 0.02 per unit of risk. If you would invest  16,618  in Ares Management Corp on October 6, 2024 and sell it today you would earn a total of  474.00  from holding Ares Management Corp or generate 2.85% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Ares Management Corp  vs.  Larsen Toubro Limited

 Performance 
       Timeline  
Ares Management Corp 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Ares Management Corp are ranked lower than 10 (%) 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.
Larsen Toubro Limited 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Larsen Toubro Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Larsen Toubro reported solid returns over the last few months and may actually be approaching a breakup point.

Ares Management and Larsen Toubro Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ares Management and Larsen Toubro

The main advantage of trading using opposite Ares Management and Larsen Toubro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ares Management position performs unexpectedly, Larsen Toubro 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 Larsen Toubro will offset losses from the drop in Larsen Toubro's long position.
The idea behind Ares Management Corp and Larsen Toubro Limited 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 CEOs Directory module to screen CEOs from public companies around the world.

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