Correlation Between Ares Management and SPDR Gold

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

By analyzing existing cross correlation between Ares Management LP and SPDR Gold Shares, you can compare the effects of market volatilities on Ares Management and SPDR Gold 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 SPDR Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ares Management and SPDR Gold.

Diversification Opportunities for Ares Management and SPDR Gold

0.68

Correlation Coefficient

Ares Management  SPDR Gold

Poor diversification

The 3 months correlation between Ares and SPDR is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Ares Management LP and SPDR Gold Shares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Gold Shares 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 LP are associated (or correlated) with SPDR Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Gold Shares has no effect on the direction of Ares Management i.e., Ares Management and SPDR Gold go up and down completely randomly.

Pair Corralation between Ares Management and SPDR Gold

Given the investment horizon of 90 days Ares Management LP is expected to generate 1.29 times more return on investment than SPDR Gold. However, Ares Management is 1.29 times more volatile than SPDR Gold Shares. It trades about 0.25 of its potential returns per unit of risk. SPDR Gold Shares is currently generating about -0.12 per unit of risk. If you would invest  15,968  in Ares Management LP on September 5, 2024 and sell it today you would earn a total of  1,537  from holding Ares Management LP or generate 9.63% return on investment over 90 days.

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

Ares Management LP  vs.  SPDR Gold Shares

Ares Management LP

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Management LP are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal technical and fundamental indicators, Ares Management unveiled solid returns over the last few months and may actually be approaching a breakup point.

SPDR Gold Shares

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Gold Shares are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, SPDR Gold is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Ares Management and SPDR Gold

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

The idea behind Ares Management LP and SPDR Gold Shares 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.