Correlation Between Ares Management and Principal Financial

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

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

Diversification Opportunities for Ares Management and Principal Financial

-0.58

Correlation Coefficient

Ares Management  Principal Financial

Excellent diversification

The 3 months correlation between Ares and Principal is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Ares Management Corp and Principal Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Financial and Ares Management 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 Management Corp are associated (or correlated) with Principal Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Financial has no effect on the direction of Ares Management i.e., Ares Management and Principal Financial go up and down completely randomly.

Pair Corralation between Ares Management and Principal Financial

Assuming the 90 days trading horizon Ares Management Corp is expected to generate 1.26 times more return on investment than Principal Financial. However, Ares Management is 1.26 times more volatile than Principal Financial Group. It trades about 0.05 of its potential returns per unit of risk. Principal Financial Group is currently generating about -0.2 per unit of risk. If you would invest  5,520  in Ares Management Corp on October 10, 2024 and sell it today you would earn a total of  85.00  from holding Ares Management Corp or generate 1.54% return on investment over 90 days.

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

Ares Management Corp  vs.  Principal Financial Group

Ares Management Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Management Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental drivers, Ares Management may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Principal Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Principal Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Ares Management and Principal Financial

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

The idea behind Ares Management Corp and Principal Financial 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.