Correlation Between Diamond Hill and Aon PLC

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

By analyzing existing cross correlation between Diamond Hill Investment and Aon PLC, you can compare the effects of market volatilities on Diamond Hill and Aon PLC 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 Diamond Hill with a short position of Aon PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diamond Hill and Aon PLC.

Diversification Opportunities for Diamond Hill and Aon PLC

-0.41

Correlation Coefficient

Diamond Hill  Aon PLC

Very good diversification

The 3 months correlation between Diamond and Aon is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Hill Investment and Aon PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aon PLC and Diamond Hill 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 Diamond Hill Investment are associated (or correlated) with Aon PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aon PLC has no effect on the direction of Diamond Hill i.e., Diamond Hill and Aon PLC go up and down completely randomly.

Pair Corralation between Diamond Hill and Aon PLC

Given the investment horizon of 90 days Diamond Hill Investment is expected to generate 0.45 times more return on investment than Aon PLC. However, Diamond Hill Investment is 2.24 times less risky than Aon PLC. It trades about 0.04 of its potential returns per unit of risk. Aon PLC is currently generating about -0.43 per unit of risk. If you would invest  15,059  in Diamond Hill Investment on January 31, 2024 and sell it today you would earn a total of  90.00  from holding Diamond Hill Investment or generate 0.6% return on investment over 90 days.

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

Diamond Hill Investment  vs.  Aon PLC

Diamond Hill Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diamond Hill Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward indicators, Diamond Hill is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Aon PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aon PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Aon PLC is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Diamond Hill and Aon PLC

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

The idea behind Diamond Hill Investment and Aon PLC 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.