Correlation Between Embrace Change and Ares Capital

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

By analyzing existing cross correlation between Embrace Change Acquisition and Ares Capital, you can compare the effects of market volatilities on Embrace Change and Ares Capital 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 Embrace Change with a short position of Ares Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Embrace Change and Ares Capital.

Diversification Opportunities for Embrace Change and Ares Capital

-0.05

Correlation Coefficient

Embrace Change  Ares Capital

Good diversification

The 3 months correlation between Embrace and Ares is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Embrace Change Acquisition and Ares Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares Capital and Embrace Change 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 Embrace Change Acquisition are associated (or correlated) with Ares Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ares Capital has no effect on the direction of Embrace Change i.e., Embrace Change and Ares Capital go up and down completely randomly.

Pair Corralation between Embrace Change and Ares Capital

Assuming the 90 days horizon Embrace Change Acquisition is expected to generate 14.71 times more return on investment than Ares Capital. However, Embrace Change is 14.71 times more volatile than Ares Capital. It trades about 0.18 of its potential returns per unit of risk. Ares Capital is currently generating about 0.05 per unit of risk. If you would invest  8.52  in Embrace Change Acquisition on December 28, 2024 and sell it today you would earn a total of  9.48  from holding Embrace Change Acquisition or generate 111.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	70.49%
Values	Daily Returns

Embrace Change Acquisition  vs.  Ares Capital

Embrace Change Acqui

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Embrace Change Acquisition are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady technical and fundamental indicators, Embrace Change reported solid returns over the last few months and may actually be approaching a breakup point.

Ares Capital

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Capital are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Ares Capital is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Embrace Change and Ares Capital

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

The idea behind Embrace Change Acquisition and Ares Capital 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.