Correlation Between Automatic Data and Ares Management

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

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

Diversification Opportunities for Automatic Data and Ares Management

0.87

Correlation Coefficient

Automatic Data  Ares Management

Very poor diversification

The 3 months correlation between Automatic and Ares is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and Ares Management Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares Management Corp and Automatic Data 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 Automatic Data Processing are associated (or correlated) with Ares Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ares Management Corp has no effect on the direction of Automatic Data i.e., Automatic Data and Ares Management go up and down completely randomly.

Pair Corralation between Automatic Data and Ares Management

Assuming the 90 days horizon Automatic Data Processing is expected to under-perform the Ares Management. But the stock apears to be less risky and, when comparing its historical volatility, Automatic Data Processing is 1.95 times less risky than Ares Management. The stock trades about 0.0 of its potential returns per unit of risk. The Ares Management Corp is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  15,482  in Ares Management Corp on October 9, 2024 and sell it today you would earn a total of  1,858  from holding Ares Management Corp or generate 12.0% return on investment over 90 days.

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

Automatic Data Processing  vs.  Ares Management Corp

Automatic Data Processing

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Automatic Data may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Ares Management Corp

Risk-Adjusted Performance

14 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Management Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Ares Management reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Automatic Data and Ares Management

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

The idea behind Automatic Data Processing and Ares Management Corp 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.