Correlation Between Ares Capital and SohuCom

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

By analyzing existing cross correlation between Ares Capital and SohuCom, you can compare the effects of market volatilities on Ares Capital and SohuCom 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 SohuCom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ares Capital and SohuCom.

Diversification Opportunities for Ares Capital and SohuCom

0.84

Correlation Coefficient

Ares Capital  SohuCom

Very poor diversification

The 3 months correlation between Ares and SohuCom is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Ares Capital and SohuCom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SohuCom 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 SohuCom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SohuCom has no effect on the direction of Ares Capital i.e., Ares Capital and SohuCom go up and down completely randomly.

Pair Corralation between Ares Capital and SohuCom

Given the investment horizon of 90 days Ares Capital is expected to generate 3.77 times less return on investment than SohuCom. But when comparing it to its historical volatility, Ares Capital is 1.79 times less risky than SohuCom. It trades about 0.14 of its potential returns per unit of risk. SohuCom is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  993.00  in SohuCom on January 20, 2024 and sell it today you would earn a total of  98.00  from holding SohuCom or generate 9.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Ares Capital  vs.  SohuCom

Ares Capital

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Capital are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Ares Capital is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

SohuCom

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SohuCom are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting technical indicators, SohuCom unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ares Capital and SohuCom

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

The idea behind Ares Capital and SohuCom 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.