Correlation Between Ares Commercial and TPG RE

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

Diversification Opportunities for Ares Commercial and TPG RE

0.01

Correlation Coefficient

Ares Commercial  TPG RE

Significant diversification

The 3 months correlation between Ares and TPG is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Ares Commercial Real and TPG RE Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TPG RE Finance 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 TPG RE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TPG RE Finance has no effect on the direction of Ares Commercial i.e., Ares Commercial and TPG RE go up and down completely randomly.

Pair Corralation between Ares Commercial and TPG RE

Given the investment horizon of 90 days Ares Commercial Real is expected to under-perform the TPG RE. In addition to that, Ares Commercial is 2.01 times more volatile than TPG RE Finance. It trades about -0.13 of its total potential returns per unit of risk. TPG RE Finance is currently generating about -0.01 per unit of volatility. If you would invest  848.00  in TPG RE Finance on December 26, 2024 and sell it today you would lose (10.00) from holding TPG RE Finance or give up 1.18% of portfolio value over 90 days.

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

Ares Commercial Real  vs.  TPG RE Finance

Ares Commercial Real

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ares Commercial Real has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

TPG RE Finance

Risk-Adjusted Performance

Very Weak

Over the last 90 days TPG RE Finance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, TPG RE is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ares Commercial and TPG RE

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

The idea behind Ares Commercial Real and TPG RE Finance 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.