Correlation Between Ares Management and Northern Trust

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

Diversification Opportunities for Ares Management and Northern Trust

0.92

Correlation Coefficient

Ares Management  Northern Trust

Almost no diversification

The 3 months correlation between Ares and Northern is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Ares Management Corp and Northern Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Trust 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 Northern Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Trust has no effect on the direction of Ares Management i.e., Ares Management and Northern Trust go up and down completely randomly.

Pair Corralation between Ares Management and Northern Trust

Assuming the 90 days horizon Ares Management Corp is expected to generate 1.24 times more return on investment than Northern Trust. However, Ares Management is 1.24 times more volatile than Northern Trust. It trades about -0.07 of its potential returns per unit of risk. Northern Trust is currently generating about -0.21 per unit of risk. If you would invest  16,912  in Ares Management Corp on September 23, 2024 and sell it today you would lose (516.00) from holding Ares Management Corp or give up 3.05% of portfolio value over 90 days.

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

Ares Management Corp  vs.  Northern Trust

Ares Management Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Management Corp are ranked lower than 9 (%) 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.

Northern Trust

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Trust are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Northern Trust reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ares Management and Northern Trust

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

The idea behind Ares Management Corp and Northern Trust 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.