Correlation Between NXG NextGen and Ares Management

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

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

Diversification Opportunities for NXG NextGen and Ares Management

0.67

Correlation Coefficient

NXG NextGen  Ares Management

Poor diversification

The 3 months correlation between NXG and Ares is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding NXG NextGen Infrastructure 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 NXG NextGen 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 NXG NextGen Infrastructure 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 NXG NextGen i.e., NXG NextGen and Ares Management go up and down completely randomly.

Pair Corralation between NXG NextGen and Ares Management

Considering the 90-day investment horizon NXG NextGen is expected to generate 2.0 times less return on investment than Ares Management. In addition to that, NXG NextGen is 1.27 times more volatile than Ares Management LP. It trades about 0.05 of its total potential returns per unit of risk. Ares Management LP is currently generating about 0.12 per unit of volatility. If you would invest  6,450  in Ares Management LP on September 23, 2024 and sell it today you would earn a total of  11,154  from holding Ares Management LP or generate 172.93% return on investment over 90 days.

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

NXG NextGen Infrastructure  vs.  Ares Management LP

NXG NextGen Infrastr

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NXG NextGen Infrastructure are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, NXG NextGen may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Ares Management LP

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Management LP are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Ares Management unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NXG NextGen and Ares Management

The main advantage of trading using opposite NXG NextGen and Ares Management positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NXG NextGen 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 NXG NextGen Infrastructure 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.