Correlation Between Principal Financial and Ares Management

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

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

Diversification Opportunities for Principal Financial and Ares Management

-0.41

Correlation Coefficient

Principal Financial  Ares Management

Very good diversification

The 3 months correlation between Principal and Ares is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Principal Financial Group 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 Principal Financial 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 Principal Financial Group 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 Principal Financial i.e., Principal Financial and Ares Management go up and down completely randomly.

Pair Corralation between Principal Financial and Ares Management

Considering the 90-day investment horizon Principal Financial Group is expected to under-perform the Ares Management. In addition to that, Principal Financial is 1.21 times more volatile than Ares Management Corp. It trades about -0.18 of its total potential returns per unit of risk. Ares Management Corp is currently generating about 0.09 per unit of volatility. If you would invest  5,298  in Ares Management Corp on September 23, 2024 and sell it today you would earn a total of  262.00  from holding Ares Management Corp or generate 4.95% return on investment over 90 days.

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

Principal Financial Group  vs.  Ares Management Corp

Principal Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Principal Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Ares Management Corp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Management Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Ares Management sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Principal Financial and Ares Management

The main advantage of trading using opposite Principal Financial and Ares Management positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Principal Financial 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 Principal Financial Group 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.