Correlation Between ARES MREAL and LUMENT FINANCE

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

By analyzing existing cross correlation between ARES MREAL ESTDL 01 and LUMENT FINANCE TR, you can compare the effects of market volatilities on ARES MREAL and LUMENT FINANCE 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 MREAL with a short position of LUMENT FINANCE. Check out your portfolio center. Please also check ongoing floating volatility patterns of ARES MREAL and LUMENT FINANCE.

Diversification Opportunities for ARES MREAL and LUMENT FINANCE

0.01

Correlation Coefficient

ARES MREAL  LUMENT FINANCE

Significant diversification

The 3 months correlation between ARES and LUMENT is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding ARES MREAL ESTDL 01 and LUMENT FINANCE TR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LUMENT FINANCE TR and ARES MREAL 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 MREAL ESTDL 01 are associated (or correlated) with LUMENT FINANCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LUMENT FINANCE TR has no effect on the direction of ARES MREAL i.e., ARES MREAL and LUMENT FINANCE go up and down completely randomly.

Pair Corralation between ARES MREAL and LUMENT FINANCE

Assuming the 90 days horizon ARES MREAL is expected to generate 8.38 times less return on investment than LUMENT FINANCE. But when comparing it to its historical volatility, ARES MREAL ESTDL 01 is 1.04 times less risky than LUMENT FINANCE. It trades about 0.01 of its potential returns per unit of risk. LUMENT FINANCE TR is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  220.00  in LUMENT FINANCE TR on October 26, 2024 and sell it today you would earn a total of  24.00  from holding LUMENT FINANCE TR or generate 10.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

ARES MREAL ESTDL 01  vs.  LUMENT FINANCE TR

ARES MREAL ESTDL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ARES MREAL ESTDL 01 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, ARES MREAL is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

LUMENT FINANCE TR

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with ARES MREAL and LUMENT FINANCE

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

The idea behind ARES MREAL ESTDL 01 and LUMENT FINANCE TR 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.