Correlation Between Ares Capital and Sixth Street

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

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

Diversification Opportunities for Ares Capital and Sixth Street

0.84

Correlation Coefficient

Ares Capital  Sixth Street

Very poor diversification

The 3 months correlation between Ares and Sixth is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Ares Capital and Sixth Street Specialty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sixth Street Specialty 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 Sixth Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sixth Street Specialty has no effect on the direction of Ares Capital i.e., Ares Capital and Sixth Street go up and down completely randomly.

Pair Corralation between Ares Capital and Sixth Street

Given the investment horizon of 90 days Ares Capital is expected to generate 1.15 times less return on investment than Sixth Street. But when comparing it to its historical volatility, Ares Capital is 1.1 times less risky than Sixth Street. It trades about 0.07 of its potential returns per unit of risk. Sixth Street Specialty is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,506  in Sixth Street Specialty on October 3, 2024 and sell it today you would earn a total of  624.00  from holding Sixth Street Specialty or generate 41.43% return on investment over 90 days.

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

Ares Capital  vs.  Sixth Street Specialty

Ares Capital

Risk-Adjusted Performance

13 of 100

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 February 2025.

Sixth Street Specialty

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sixth Street Specialty are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady essential indicators, Sixth Street may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Ares Capital and Sixth Street

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

The idea behind Ares Capital and Sixth Street Specialty 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.