Correlation Between Ares Capital and Westwood Holdings

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

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

Diversification Opportunities for Ares Capital and Westwood Holdings

0.93

Correlation Coefficient

Ares Capital  Westwood Holdings

Almost no diversification

The 3 months correlation between Ares and Westwood is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Ares Capital and Westwood Holdings Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westwood Holdings 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 Westwood Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westwood Holdings has no effect on the direction of Ares Capital i.e., Ares Capital and Westwood Holdings go up and down completely randomly.

Pair Corralation between Ares Capital and Westwood Holdings

Given the investment horizon of 90 days Ares Capital is expected to generate 3.53 times less return on investment than Westwood Holdings. But when comparing it to its historical volatility, Ares Capital is 4.41 times less risky than Westwood Holdings. It trades about 0.17 of its potential returns per unit of risk. Westwood Holdings Group is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,275  in Westwood Holdings Group on August 31, 2024 and sell it today you would earn a total of  324.00  from holding Westwood Holdings Group or generate 25.41% return on investment over 90 days.

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

Ares Capital  vs.  Westwood Holdings Group

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 December 2024.

Westwood Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Westwood Holdings Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical indicators, Westwood Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ares Capital and Westwood Holdings

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

The idea behind Ares Capital and Westwood Holdings Group 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 Stocks Directory module to find actively traded stocks across global markets.