Correlation Between Ares Commercial and Two Harbors

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

Diversification Opportunities for Ares Commercial and Two Harbors

-0.69

Correlation Coefficient

Ares Commercial  Two Harbors

Excellent diversification

The 3 months correlation between Ares and Two is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Ares Commercial Real and Two Harbors Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Two Harbors Investments 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 Two Harbors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Two Harbors Investments has no effect on the direction of Ares Commercial i.e., Ares Commercial and Two Harbors go up and down completely randomly.

Pair Corralation between Ares Commercial and Two Harbors

Given the investment horizon of 90 days Ares Commercial Real is expected to under-perform the Two Harbors. In addition to that, Ares Commercial is 1.85 times more volatile than Two Harbors Investments. It trades about -0.24 of its total potential returns per unit of risk. Two Harbors Investments is currently generating about 0.44 per unit of volatility. If you would invest  1,198  in Two Harbors Investments on November 28, 2024 and sell it today you would earn a total of  193.00  from holding Two Harbors Investments or generate 16.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Ares Commercial Real  vs.  Two Harbors Investments

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 March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Two Harbors Investments

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Two Harbors Investments are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Two Harbors displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ares Commercial and Two Harbors

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

The idea behind Ares Commercial Real and Two Harbors Investments 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.