Correlation Between Ares Management and Telefonaktiebolaget

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

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

Diversification Opportunities for Ares Management and Telefonaktiebolaget

0.27

Correlation Coefficient

Ares Management  Telefonaktiebolaget

Modest diversification

The 3 months correlation between Ares and Telefonaktiebolaget is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Ares Management and Telefonaktiebolaget LM Ericsso in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonaktiebolaget 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 are associated (or correlated) with Telefonaktiebolaget. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefonaktiebolaget has no effect on the direction of Ares Management i.e., Ares Management and Telefonaktiebolaget go up and down completely randomly.

Pair Corralation between Ares Management and Telefonaktiebolaget

Assuming the 90 days trading horizon Ares Management is expected to generate 0.78 times more return on investment than Telefonaktiebolaget. However, Ares Management is 1.28 times less risky than Telefonaktiebolaget. It trades about 0.15 of its potential returns per unit of risk. Telefonaktiebolaget LM Ericsson is currently generating about 0.1 per unit of risk. If you would invest  4,530  in Ares Management on October 22, 2024 and sell it today you would earn a total of  7,086  from holding Ares Management or generate 156.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	86.63%
Values	Daily Returns

Ares Management  vs.  Telefonaktiebolaget LM Ericsso

Ares Management

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Management are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ares Management sustained solid returns over the last few months and may actually be approaching a breakup point.

Telefonaktiebolaget

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonaktiebolaget LM Ericsson are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Telefonaktiebolaget may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Ares Management and Telefonaktiebolaget

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

The idea behind Ares Management and Telefonaktiebolaget LM Ericsson 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.