Correlation Between Alliance Data and Ares Management

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

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

Diversification Opportunities for Alliance Data and Ares Management

0.91

Correlation Coefficient

Alliance Data  Ares Management

Almost no diversification

The 3 months correlation between Alliance and Ares is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Data Systems 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 Alliance Data 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 Alliance Data Systems 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 Alliance Data i.e., Alliance Data and Ares Management go up and down completely randomly.

Pair Corralation between Alliance Data and Ares Management

Assuming the 90 days trading horizon Alliance Data Systems is expected to under-perform the Ares Management. But the stock apears to be less risky and, when comparing its historical volatility, Alliance Data Systems is 1.21 times less risky than Ares Management. The stock trades about -0.08 of its potential returns per unit of risk. The Ares Management Corp is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  16,831  in Ares Management Corp on October 9, 2024 and sell it today you would earn a total of  509.00  from holding Ares Management Corp or generate 3.02% return on investment over 90 days.

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

Alliance Data Systems  vs.  Ares Management Corp

Alliance Data Systems

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Data Systems are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Alliance Data unveiled solid returns over the last few months and may actually be approaching a breakup point.

Ares Management Corp

Risk-Adjusted Performance

14 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Management Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Ares Management reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alliance Data and Ares Management

The main advantage of trading using opposite Alliance Data and Ares Management positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alliance Data 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 Alliance Data Systems 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.