Correlation Between Ares Management and Trane Technologies

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

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

Diversification Opportunities for Ares Management and Trane Technologies

0.83

Correlation Coefficient

Ares Management  Trane Technologies

Very poor diversification

The 3 months correlation between Ares and Trane is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Ares Management and Trane Technologies plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trane Technologies plc 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 Trane Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trane Technologies plc has no effect on the direction of Ares Management i.e., Ares Management and Trane Technologies go up and down completely randomly.

Pair Corralation between Ares Management and Trane Technologies

Assuming the 90 days trading horizon Ares Management is expected to generate 0.87 times more return on investment than Trane Technologies. However, Ares Management is 1.15 times less risky than Trane Technologies. It trades about 0.13 of its potential returns per unit of risk. Trane Technologies plc is currently generating about 0.11 per unit of risk. If you would invest  3,942  in Ares Management on October 11, 2024 and sell it today you would earn a total of  7,176  from holding Ares Management or generate 182.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.8%
Values	Daily Returns

Ares Management  vs.  Trane Technologies plc

Ares Management

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Management are ranked lower than 17 (%) 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.

Trane Technologies plc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Trane Technologies plc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Trane Technologies sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ares Management and Trane Technologies

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

The idea behind Ares Management and Trane Technologies plc 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..