Correlation Between Trane Technologies and Ares Management

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

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

Diversification Opportunities for Trane Technologies and Ares Management

0.65

Correlation Coefficient

Trane Technologies  Ares Management

Poor diversification

The 3 months correlation between Trane and Ares is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Trane Technologies plc and Ares Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares Management and Trane Technologies 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 Trane Technologies plc 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 has no effect on the direction of Trane Technologies i.e., Trane Technologies and Ares Management go up and down completely randomly.

Pair Corralation between Trane Technologies and Ares Management

Assuming the 90 days trading horizon Trane Technologies plc is expected to generate 0.76 times more return on investment than Ares Management. However, Trane Technologies plc is 1.31 times less risky than Ares Management. It trades about -0.15 of its potential returns per unit of risk. Ares Management is currently generating about -0.19 per unit of risk. If you would invest  120,360  in Trane Technologies plc on December 22, 2024 and sell it today you would lose (17,760) from holding Trane Technologies plc or give up 14.76% of portfolio value over 90 days.

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

Trane Technologies plc  vs.  Ares Management

Trane Technologies plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Trane Technologies plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Ares Management

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ares Management has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Trane Technologies and Ares Management

The main advantage of trading using opposite Trane Technologies and Ares Management positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Trane Technologies 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 Trane Technologies plc and Ares Management 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.