Correlation Between Starwood Property and Ares Commercial

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

By analyzing existing cross correlation between Starwood Property Trust and Ares Commercial Real, you can compare the effects of market volatilities on Starwood Property and Ares Commercial 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 Starwood Property with a short position of Ares Commercial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Starwood Property and Ares Commercial.

Diversification Opportunities for Starwood Property and Ares Commercial

0.32

Correlation Coefficient

Starwood Property  Ares Commercial

Weak diversification

The 3 months correlation between Starwood and Ares is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Starwood Property Trust and Ares Commercial Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares Commercial Real and Starwood Property 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 Starwood Property Trust are associated (or correlated) with Ares Commercial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ares Commercial Real has no effect on the direction of Starwood Property i.e., Starwood Property and Ares Commercial go up and down completely randomly.

Pair Corralation between Starwood Property and Ares Commercial

Given the investment horizon of 90 days Starwood Property Trust is expected to generate 0.55 times more return on investment than Ares Commercial. However, Starwood Property Trust is 1.81 times less risky than Ares Commercial. It trades about 0.29 of its potential returns per unit of risk. Ares Commercial Real is currently generating about 0.03 per unit of risk. If you would invest  1,944  in Starwood Property Trust on September 14, 2024 and sell it today you would earn a total of  80.00  from holding Starwood Property Trust or generate 4.12% return on investment over 90 days.

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

Starwood Property Trust  vs.  Ares Commercial Real

Starwood Property Trust

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Starwood Property Trust are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Starwood Property is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Ares Commercial Real

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ares Commercial Real has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Ares Commercial is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Starwood Property and Ares Commercial

The main advantage of trading using opposite Starwood Property and Ares Commercial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Starwood Property position performs unexpectedly, Ares Commercial 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 Commercial will offset losses from the drop in Ares Commercial's long position.

The idea behind Starwood Property Trust and Ares Commercial Real 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.