Correlation Between GM and Ares Management

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

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

Diversification Opportunities for GM and Ares Management

-0.27

Correlation Coefficient

GM  Ares Management

Very good diversification

The 3 months correlation between GM and Ares is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Ares Management Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares Management Corp and GM 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 General Motors are associated (or correlated) with Ares Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ares Management Corp has no effect on the direction of GM i.e., GM and Ares Management go up and down completely randomly.

Pair Corralation between GM and Ares Management

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.98 times more return on investment than Ares Management. However, General Motors is 1.02 times less risky than Ares Management. It trades about -0.01 of its potential returns per unit of risk. Ares Management Corp is currently generating about -0.34 per unit of risk. If you would invest  4,950  in General Motors on December 1, 2024 and sell it today you would lose (37.00) from holding General Motors or give up 0.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

General Motors  vs.  Ares Management Corp

General Motors

Risk-Adjusted Performance

Very Weak

Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Ares Management Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ares Management Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Ares Management is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with GM and Ares Management

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

The idea behind General Motors and Ares Management Corp 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.