Correlation Between HUTCHMED DRC and Ares AcquisitionII

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

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

Diversification Opportunities for HUTCHMED DRC and Ares AcquisitionII

-0.42

Correlation Coefficient

HUTCHMED DRC  Ares AcquisitionII

Very good diversification

The 3 months correlation between HUTCHMED and Ares is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding HUTCHMED DRC and Ares Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares AcquisitionII and HUTCHMED DRC 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 HUTCHMED DRC are associated (or correlated) with Ares AcquisitionII. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ares AcquisitionII has no effect on the direction of HUTCHMED DRC i.e., HUTCHMED DRC and Ares AcquisitionII go up and down completely randomly.

Pair Corralation between HUTCHMED DRC and Ares AcquisitionII

Considering the 90-day investment horizon HUTCHMED DRC is expected to under-perform the Ares AcquisitionII. In addition to that, HUTCHMED DRC is 4.43 times more volatile than Ares Acquisition. It trades about -0.21 of its total potential returns per unit of risk. Ares Acquisition is currently generating about 0.07 per unit of volatility. If you would invest  1,109  in Ares Acquisition on October 26, 2024 and sell it today you would earn a total of  31.00  from holding Ares Acquisition or generate 2.8% return on investment over 90 days.

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

HUTCHMED DRC  vs.  Ares Acquisition

HUTCHMED DRC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HUTCHMED DRC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Ares AcquisitionII

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Acquisition are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Ares AcquisitionII is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with HUTCHMED DRC and Ares AcquisitionII

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

The idea behind HUTCHMED DRC and Ares Acquisition 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.