Correlation Between Ares Capital and Tekla Life

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

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

Diversification Opportunities for Ares Capital and Tekla Life

0.26

Correlation Coefficient

Ares Capital  Tekla Life

Modest diversification

The 3 months correlation between Ares and Tekla is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Ares Capital and Tekla Life Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tekla Life Sciences and Ares Capital 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 Capital are associated (or correlated) with Tekla Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tekla Life Sciences has no effect on the direction of Ares Capital i.e., Ares Capital and Tekla Life go up and down completely randomly.

Pair Corralation between Ares Capital and Tekla Life

Given the investment horizon of 90 days Ares Capital is expected to under-perform the Tekla Life. In addition to that, Ares Capital is 1.13 times more volatile than Tekla Life Sciences. It trades about -0.02 of its total potential returns per unit of risk. Tekla Life Sciences is currently generating about 0.09 per unit of volatility. If you would invest  1,376  in Tekla Life Sciences on November 19, 2024 and sell it today you would earn a total of  23.00  from holding Tekla Life Sciences or generate 1.67% return on investment over 90 days.

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

Ares Capital  vs.  Tekla Life Sciences

Ares Capital

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Capital are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile fundamental indicators, Ares Capital may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Tekla Life Sciences

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tekla Life Sciences are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Tekla Life is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Ares Capital and Tekla Life

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

The idea behind Ares Capital and Tekla Life Sciences 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.