Correlation Between Ares Capital and Investor

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

By analyzing existing cross correlation between Ares Capital and Investor AB, you can compare the effects of market volatilities on Ares Capital and Investor 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 Investor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ares Capital and Investor.

Diversification Opportunities for Ares Capital and Investor

0.36

Correlation Coefficient

Ares Capital  Investor

Weak diversification

The 3 months correlation between Ares and Investor is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Ares Capital and Investor AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investor AB 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 Investor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investor AB has no effect on the direction of Ares Capital i.e., Ares Capital and Investor go up and down completely randomly.

Pair Corralation between Ares Capital and Investor

Given the investment horizon of 90 days Ares Capital is expected to generate 2.67 times less return on investment than Investor. But when comparing it to its historical volatility, Ares Capital is 1.24 times less risky than Investor. It trades about 0.06 of its potential returns per unit of risk. Investor AB is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,699  in Investor AB on December 21, 2024 and sell it today you would earn a total of  262.00  from holding Investor AB or generate 9.71% 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.  Investor AB

Ares Capital

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Capital are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Ares Capital is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Investor AB

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Investor AB are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Investor may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Ares Capital and Investor

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

The idea behind Ares Capital and Investor AB 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.