Correlation Between Bain Capital and Ares Capital

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

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

Diversification Opportunities for Bain Capital and Ares Capital

0.9

Correlation Coefficient

Bain Capital  Ares Capital

Almost no diversification

The 3 months correlation between Bain and Ares is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Bain Capital Specialty and Ares Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares Capital and Bain Capital 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 Bain Capital Specialty are associated (or correlated) with Ares Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ares Capital has no effect on the direction of Bain Capital i.e., Bain Capital and Ares Capital go up and down completely randomly.

Pair Corralation between Bain Capital and Ares Capital

Given the investment horizon of 90 days Bain Capital Specialty is expected to generate 1.43 times more return on investment than Ares Capital. However, Bain Capital is 1.43 times more volatile than Ares Capital. It trades about 0.19 of its potential returns per unit of risk. Ares Capital is currently generating about 0.12 per unit of risk. If you would invest  1,015  in Bain Capital Specialty on February 3, 2024 and sell it today you would earn a total of  646.00  from holding Bain Capital Specialty or generate 63.65% return on investment over 90 days.

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

Bain Capital Specialty  vs.  Ares Capital

Bain Capital Specialty

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bain Capital Specialty are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Bain Capital reported solid returns over the last few months and may actually be approaching a breakup point.

Ares Capital

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Capital are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Ares Capital is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Bain Capital and Ares Capital

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

The idea behind Bain Capital Specialty and Ares Capital 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.