Correlation Between TPG and Ares Management

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

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

Diversification Opportunities for TPG and Ares Management

-0.25

Correlation Coefficient

TPG  Ares Management

Very good diversification

The 3 months correlation between TPG and Ares is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding TPG Inc and Ares Management LP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares Management LP and TPG 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 TPG Inc are associated (or correlated) with Ares Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ares Management LP has no effect on the direction of TPG i.e., TPG and Ares Management go up and down completely randomly.

Pair Corralation between TPG and Ares Management

Considering the 90-day investment horizon TPG Inc is expected to under-perform the Ares Management. In addition to that, TPG is 1.02 times more volatile than Ares Management LP. It trades about -0.01 of its total potential returns per unit of risk. Ares Management LP is currently generating about 0.11 per unit of volatility. If you would invest  13,171  in Ares Management LP on February 29, 2024 and sell it today you would earn a total of  1,263  from holding Ares Management LP or generate 9.59% return on investment over 90 days.

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

TPG Inc  vs.  Ares Management LP

TPG Inc

Risk-Adjusted Performance

0 of 100

Very Weak

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

Ares Management LP

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Management LP are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal technical and fundamental indicators, Ares Management may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with TPG and Ares Management

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

The idea behind TPG Inc and Ares Management LP 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.