Correlation Between Ares Management and State Street

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

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

Diversification Opportunities for Ares Management and State Street

-0.42

Correlation Coefficient

Ares Management  State Street

Very good diversification

The 3 months correlation between Ares and State is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Ares Management Corp and State Street in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street and Ares Management 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 Ares Management Corp are associated (or correlated) with State Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Street has no effect on the direction of Ares Management i.e., Ares Management and State Street go up and down completely randomly.

Pair Corralation between Ares Management and State Street

Assuming the 90 days trading horizon Ares Management Corp is expected to generate 2.68 times more return on investment than State Street. However, Ares Management is 2.68 times more volatile than State Street. It trades about 0.06 of its potential returns per unit of risk. State Street is currently generating about -0.17 per unit of risk. If you would invest  5,387  in Ares Management Corp on September 24, 2024 and sell it today you would earn a total of  173.00  from holding Ares Management Corp or generate 3.21% return on investment over 90 days.

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

Ares Management Corp  vs.  State Street

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 unsteady fundamental drivers, Ares Management sustained solid returns over the last few months and may actually be approaching a breakup point.

State Street

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days State Street has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, State Street is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Ares Management and State Street

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

The idea behind Ares Management Corp and State Street 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.