Ares Dynamic Current Financial Leverage

ARDC Fund  USD 14.17  0.08  0.57%   
Ares Dynamic's financial risk is the risk to Ares Dynamic stockholders that is caused by an increase in debt. In other words, with a high degree of financial leverage come high-interest payments, which usually reduce Earnings Per Share (EPS).
Given that Ares Dynamic's debt-to-equity ratio measures a Fund's obligations relative to the value of its net assets, it is usually used by traders to estimate the extent to which Ares Dynamic is acquiring new debt as a mechanism of leveraging its assets. A high debt-to-equity ratio is generally associated with increased risk, implying that it has been aggressive in financing its growth with debt. Another way to look at debt-to-equity ratios is to compare the overall debt load of Ares Dynamic to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Ares Dynamic is said to be less leveraged. If creditors hold a majority of Ares Dynamic's assets, the Fund is said to be highly leveraged.
  
Check out the analysis of Ares Dynamic Fundamentals Over Time.

Ares Dynamic Financial Leverage Rating

Ares Dynamic Credit bond ratings play a critical role in determining how much Ares Dynamic have to pay to access credit markets, i.e., the amount of interest on their issued debt. The threshold between investment-grade and speculative-grade ratings has important market implications for Ares Dynamic's borrowing costs.

Ares Dynamic Assets Financed by Debt

Typically, companies with high debt-to-asset ratios are said to be highly leveraged. The higher the ratio, the greater risk will be associated with the Ares Dynamic's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Ares Dynamic, which in turn will lower the firm's financial flexibility. Like all other financial ratios, a an Ares Dynamic debt ratio should be compared their industry average or other competing firms.

Understaning Ares Dynamic Use of Financial Leverage

Ares Dynamic financial leverage ratio helps in determining the effect of debt on the overall profitability of the company. It measures Ares Dynamic's total debt position, including all of outstanding debt obligations, and compares it with the equity. In simple terms, the high financial leverage means the cost of production, together with running the business day-to-day, is high, whereas, lower financial leverage implies lower fixed cost investment in the business and generally considered by investors to be a good sign. So if creditors own a majority of Ares Dynamic assets, the company is considered highly leveraged. Understanding the composition and structure of overall Ares Dynamic debt and outstanding corporate bonds gives a good idea of how risky the capital structure of a business and if it is worth investing in it. Financial leverage can amplify the potential profits to Ares Dynamic's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its debt costs. The degree of Ares Dynamic's financial leverage can be measured in several ways, including by ratios such as the debt-to-equity ratio (total debt / total equity), equity multiplier (total assets / total equity), or the debt ratio (total debt / total assets).
Ares Dynamic Credit Allocation Fund, Inc. is a closed-ended fixed income mutual fund launched by Ares Management LLC. Ares Dynamic Credit Allocation Fund, Inc. was formed on November 27, 2012 and is domiciled in the United States. Ares Dynamic is traded on New York Stock Exchange in the United States.
Please read more on our technical analysis page.
Some investors attempt to determine whether the market's mood is bullish or bearish by monitoring changes in market sentiment. Unlike more traditional methods such as technical analysis, investor sentiment usually refers to the aggregate attitude towards Ares Dynamic in the overall investment community. So, suppose investors can accurately measure the market's sentiment. In that case, they can use it for their benefit. For example, some tools to gauge market sentiment could be utilized using contrarian indexes, Ares Dynamic's short interest history, or implied volatility extrapolated from Ares Dynamic options trading.

Pair Trading with Ares Dynamic

One of the main advantages of trading using pair correlations is that every trade hedges away some risk. Because there are two separate transactions required, even if Ares Dynamic position performs unexpectedly, the other equity 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 Dynamic will appreciate offsetting losses from the drop in the long position's value.

Moving together with Ares Fund

  0.8WHIYX Ivy High IncomePairCorr
  0.81IVHIX Ivy High IncomePairCorr
  0.82IHIFX Ivy High IncomePairCorr
  0.79WRHIX Ivy High IncomePairCorr

Moving against Ares Fund

  0.68BA Boeing Fiscal Quarter End 31st of March 2024 PairCorr
The ability to find closely correlated positions to Ares Dynamic could be a great tool in your tax-loss harvesting strategies, allowing investors a quick way to find a similar-enough asset to replace Ares Dynamic when you sell it. If you don't do this, your portfolio allocation will be skewed against your target asset allocation. So, investors can't just sell and buy back Ares Dynamic - that would be a violation of the tax code under the "wash sale" rule, and this is why you need to find a similar enough asset and use the proceeds from selling Ares Dynamic Credit to buy it.
The correlation of Ares Dynamic is a statistical measure of how it moves in relation to other instruments. This measure is expressed in what is known as the correlation coefficient, which ranges between -1 and +1. A perfect positive correlation (i.e., a correlation coefficient of +1) implies that as Ares Dynamic moves, either up or down, the other security will move in the same direction. Alternatively, perfect negative correlation means that if Ares Dynamic Credit moves in either direction, the perfectly negatively correlated security will move in the opposite direction. If the correlation is 0, the equities are not correlated; they are entirely random. A correlation greater than 0.8 is generally described as strong, whereas a correlation less than 0.5 is generally considered weak.
Correlation analysis and pair trading evaluation for Ares Dynamic can also be used as hedging techniques within a particular sector or industry or even over random equities to generate a better risk-adjusted return on your portfolios.
Pair CorrelationCorrelation Matching
Check out the analysis of Ares Dynamic Fundamentals Over Time.
Note that the Ares Dynamic Credit information on this page should be used as a complementary analysis to other Ares Dynamic's statistical models used 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.

Complementary Tools for Ares Fund analysis

When running Ares Dynamic's price analysis, check to measure Ares Dynamic's market volatility, profitability, liquidity, solvency, efficiency, growth potential, financial leverage, and other vital indicators. We have many different tools that can be utilized to determine how healthy Ares Dynamic is operating at the current time. Most of Ares Dynamic's value examination focuses on studying past and present price action to predict the probability of Ares Dynamic's future price movements. You can analyze the entity against its peers and the financial market as a whole to determine factors that move Ares Dynamic's price. Additionally, you may evaluate how the addition of Ares Dynamic to your portfolios can decrease your overall portfolio volatility.
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Please note, there is a significant difference between Ares Dynamic's value and its price as these two are different measures arrived at by different means. Investors typically determine if Ares Dynamic is a good investment by looking at such factors as earnings, sales, fundamental and technical indicators, competition as well as analyst projections. However, Ares Dynamic's price is the amount at which it trades on the open market and represents the number that a seller and buyer find agreeable to each party.

What is Financial Leverage?

Financial leverage is the use of borrowed money (debt) to finance the purchase of assets with the expectation that the income or capital gain from the new asset will exceed the cost of borrowing. In most cases, the debt provider will limit how much risk it is ready to take and indicate a limit on the extent of the leverage it will allow. In the case of asset-backed lending, the financial provider uses the assets as collateral until the borrower repays the loan. In the case of a cash flow loan, the general creditworthiness of the company is used to back the loan. The concept of leverage is common in the business world. It is mostly used to boost the returns on equity capital of a company, especially when the business is unable to increase its operating efficiency and returns on total investment. Because earnings on borrowing are higher than the interest payable on debt, the company's total earnings will increase, ultimately boosting stockholders' profits.

Leverage and Capital Costs

The debt to equity ratio plays a role in the working average cost of capital (WACC). The overall interest on debt represents the break-even point that must be obtained to profitability in a given venture. Thus, WACC is essentially the average interest an organization owes on the capital it has borrowed for leverage. Let's say equity represents 60% of borrowed capital, and debt is 40%. This results in a financial leverage calculation of 40/60, or 0.6667. The organization owes 10% on all equity and 5% on all debt. That means that the weighted average cost of capital is (.4)(5) + (.6)(10) - or 8%. For every $10,000 borrowed, this organization will owe $800 in interest. Profit must be higher than 8% on the project to offset the cost of interest and justify this leverage.

Benefits of Financial Leverage

Leverage provides the following benefits for companies:
  • Leverage is an essential tool a company's management can use to make the best financing and investment decisions.
  • It provides a variety of financing sources by which the firm can achieve its target earnings.
  • Leverage is also an essential technique in investing as it helps companies set a threshold for the expansion of business operations. For example, it can be used to recommend restrictions on business expansion once the projected return on additional investment is lower than the cost of debt.
By borrowing funds, the firm incurs a debt that must be paid. But, this debt is paid in small installments over a relatively long period of time. This frees funds for more immediate use in the stock market. For example, suppose a company can afford a new factory but will be left with negligible free cash. In that case, it may be better to finance the factory and spend the cash on hand on inputs, labor, or even hold a significant portion as a reserve against unforeseen circumstances.

The Risk of Financial Leverage

The most obvious and apparent risk of leverage is that if price changes unexpectedly, the leveraged position can lead to severe losses. For example, imagine a hedge fund seeded by $50 worth of investor money. The hedge fund borrows another $50 and buys an asset worth $100, leading to a leverage ratio of 2:1. For the investor, this is neither good nor bad -- until the asset price changes. If the asset price goes up 10 percent, the investor earns $10 on $50 of capital, a net gain of 20 percent, and is very pleased with the increased gains from the leverage. However, if the asset price crashes unexpectedly, say by 30 percent, the investor loses $30 on $50 of capital, suffering a 60 percent loss. In other words, the effect of leverage is to increase the volatility of returns and increase the effects of a price change on the asset to the bottom line while increasing the chance for profit as well.