Correlation Between KKR Co and Ares Capital

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

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

Diversification Opportunities for KKR Co and Ares Capital

0.33

Correlation Coefficient

KKR Co  Ares Capital

Weak diversification

The 3 months correlation between KKR and Ares is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding KKR Co LP and Ares Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares Capital and KKR Co 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 KKR Co LP 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 KKR Co i.e., KKR Co and Ares Capital go up and down completely randomly.

Pair Corralation between KKR Co and Ares Capital

Considering the 90-day investment horizon KKR Co LP is expected to under-perform the Ares Capital. In addition to that, KKR Co is 2.61 times more volatile than Ares Capital. It trades about -0.17 of its total potential returns per unit of risk. Ares Capital is currently generating about 0.02 per unit of volatility. If you would invest  2,056  in Ares Capital on February 6, 2024 and sell it today you would earn a total of  5.00  from holding Ares Capital or generate 0.24% return on investment over 90 days.

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

KKR Co LP  vs.  Ares Capital

KKR Co LP

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KKR Co LP are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward-looking signals, KKR Co is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Ares Capital

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Capital are ranked lower than 10 (%) 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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with KKR Co and Ares Capital

The main advantage of trading using opposite KKR Co and Ares Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KKR Co 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 KKR Co LP 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.