Correlation Between Ares Commercial and AgJunction

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

By analyzing existing cross correlation between Ares Commercial Real and AgJunction, you can compare the effects of market volatilities on Ares Commercial and AgJunction 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 Commercial with a short position of AgJunction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ares Commercial and AgJunction.

Diversification Opportunities for Ares Commercial and AgJunction

-0.02

Correlation Coefficient

Ares Commercial  AgJunction

Good diversification

The 3 months correlation between Ares and AgJunction is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Ares Commercial Real and AgJunction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AgJunction and Ares Commercial 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 Commercial Real are associated (or correlated) with AgJunction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AgJunction has no effect on the direction of Ares Commercial i.e., Ares Commercial and AgJunction go up and down completely randomly.

Pair Corralation between Ares Commercial and AgJunction

Given the investment horizon of 90 days Ares Commercial is expected to generate 287.25 times less return on investment than AgJunction. But when comparing it to its historical volatility, Ares Commercial Real is 62.91 times less risky than AgJunction. It trades about 0.03 of its potential returns per unit of risk. AgJunction is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  340.00  in AgJunction on September 12, 2024 and sell it today you would lose (40.00) from holding AgJunction or give up 11.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.65%
Values	Daily Returns

Ares Commercial Real  vs.  AgJunction

Ares Commercial Real

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Commercial Real are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Ares Commercial is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

AgJunction

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days AgJunction has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly unsteady forward-looking indicators, AgJunction showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ares Commercial and AgJunction

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

The idea behind Ares Commercial Real and AgJunction 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.