Correlation Between Ares Management and Sea

Can any of the company-specific risk be diversified away by investing in both Ares Management and Sea 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 Sea 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 Sea, you can compare the effects of market volatilities on Ares Management and Sea 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 Sea. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ares Management and Sea.

Diversification Opportunities for Ares Management and Sea

0.34

Correlation Coefficient

Ares Management  Sea

Weak diversification

The 3 months correlation between Ares and Sea is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Ares Management Corp and Sea in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sea 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 Sea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sea has no effect on the direction of Ares Management i.e., Ares Management and Sea go up and down completely randomly.

Pair Corralation between Ares Management and Sea

Assuming the 90 days trading horizon Ares Management Corp is expected to generate 0.88 times more return on investment than Sea. However, Ares Management Corp is 1.13 times less risky than Sea. It trades about 0.05 of its potential returns per unit of risk. Sea is currently generating about -0.08 per unit of risk. If you would invest  5,484  in Ares Management Corp on September 24, 2024 and sell it today you would earn a total of  76.00  from holding Ares Management Corp or generate 1.39% return on investment over 90 days.

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

Ares Management Corp  vs.  Sea

Ares Management Corp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Management Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental drivers, Ares Management sustained solid returns over the last few months and may actually be approaching a breakup point.

Sea

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sea are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sea exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ares Management and Sea

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

The idea behind Ares Management Corp and Sea 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.

Check out your portfolio center.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.