Correlation Between Ares Capital and Northern Trust
Can any of the company-specific risk be diversified away by investing in both Ares Capital and Northern Trust 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 Capital and Northern Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ares Capital and Northern Trust, you can compare the effects of market volatilities on Ares Capital and Northern Trust 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 Capital with a short position of Northern Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ares Capital and Northern Trust.
Diversification Opportunities for Ares Capital and Northern Trust
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Ares and Northern is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Ares Capital and Northern Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Trust and Ares 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 Ares Capital are associated (or correlated) with Northern Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Trust has no effect on the direction of Ares Capital i.e., Ares Capital and Northern Trust go up and down completely randomly.
Pair Corralation between Ares Capital and Northern Trust
Given the investment horizon of 90 days Ares Capital is expected to generate 2.09 times less return on investment than Northern Trust. But when comparing it to its historical volatility, Ares Capital is 2.05 times less risky than Northern Trust. It trades about 0.11 of its potential returns per unit of risk. Northern Trust is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 7,398 in Northern Trust on August 24, 2024 and sell it today you would earn a total of 3,496 from holding Northern Trust or generate 47.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ares Capital vs. Northern Trust
Performance |
| Timeline |
| Ares Capital |
| Northern Trust |
Ares Capital and Northern Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ares Capital and Northern Trust
The main advantage of trading using opposite Ares Capital and Northern Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ares Capital position performs unexpectedly, Northern Trust 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 Northern Trust will offset losses from the drop in Northern Trust's long position.| Ares Capital vs. Triplepoint Venture Growth | Ares Capital vs. Sixth Street Specialty | Ares Capital vs. Main Street Capital | Ares Capital vs. Capital Southwest |
| Northern Trust vs. Bank of New | Northern Trust vs. Invesco Plc | Northern Trust vs. Franklin Resources | Northern Trust vs. T Rowe Price |
Check out your portfolio center.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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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