Correlation Between Main Street and Ares Management

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

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

Diversification Opportunities for Main Street and Ares Management

0.59

Correlation Coefficient

Main Street  Ares Management

Very weak diversification

The 3 months correlation between Main and Ares is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Main Street Capital and Ares Management LP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares Management LP and Main Street 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 Main Street Capital 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 LP has no effect on the direction of Main Street i.e., Main Street and Ares Management go up and down completely randomly.

Pair Corralation between Main Street and Ares Management

Given the investment horizon of 90 days Main Street Capital is expected to generate 0.57 times more return on investment than Ares Management. However, Main Street Capital is 1.77 times less risky than Ares Management. It trades about 0.02 of its potential returns per unit of risk. Ares Management LP is currently generating about -0.11 per unit of risk. If you would invest  5,687  in Main Street Capital on December 27, 2024 and sell it today you would earn a total of  60.00  from holding Main Street Capital or generate 1.06% return on investment over 90 days.

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

Main Street Capital  vs.  Ares Management LP

Main Street Capital

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Main Street Capital are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, Main Street is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Ares Management LP

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ares Management LP 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 technical and fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Main Street and Ares Management

The main advantage of trading using opposite Main Street and Ares Management positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Main Street 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 Main Street Capital and Ares Management LP 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.