Correlation Between NYSE Composite and Ares Commercial

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

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

Diversification Opportunities for NYSE Composite and Ares Commercial

0.15

Correlation Coefficient

NYSE Composite  Ares Commercial

Average diversification

The 3 months correlation between NYSE and Ares is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite 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 NYSE Composite 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 NYSE Composite 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 NYSE Composite i.e., NYSE Composite and Ares Commercial go up and down completely randomly.

Pair Corralation between NYSE Composite and Ares Commercial

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.34 times more return on investment than Ares Commercial. However, NYSE Composite is 2.93 times less risky than Ares Commercial. It trades about 0.07 of its potential returns per unit of risk. Ares Commercial Real is currently generating about -0.02 per unit of risk. If you would invest  1,560,567  in NYSE Composite on August 15, 2024 and sell it today you would earn a total of  424,762  from holding NYSE Composite or generate 27.22% return on investment over 90 days.

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

NYSE Composite  vs.  Ares Commercial Real

Pair Trading with NYSE Composite and Ares Commercial

The main advantage of trading using opposite NYSE Composite and Ares Commercial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite 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 NYSE Composite 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.