Correlation Between Arthur J and Aon PLC

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

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

Diversification Opportunities for Arthur J and Aon PLC

0.63

Correlation Coefficient

Arthur J  Aon PLC

Poor diversification

The 3 months correlation between Arthur and Aon is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Arthur J Gallagher and Aon PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aon PLC and Arthur J 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 Arthur J Gallagher 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 Arthur J i.e., Arthur J and Aon PLC go up and down completely randomly.

Pair Corralation between Arthur J and Aon PLC

Considering the 90-day investment horizon Arthur J Gallagher is expected to under-perform the Aon PLC. In addition to that, Arthur J is 1.08 times more volatile than Aon PLC. It trades about -0.05 of its total potential returns per unit of risk. Aon PLC is currently generating about 0.06 per unit of volatility. If you would invest  34,762  in Aon PLC on September 12, 2024 and sell it today you would earn a total of  1,367  from holding Aon PLC or generate 3.93% return on investment over 90 days.

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

Arthur J Gallagher  vs.  Aon PLC

Arthur J Gallagher

Risk-Adjusted Performance

0 of 100

Very Weak

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

Aon PLC

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Aon PLC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Aon PLC is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Arthur J and Aon PLC

The main advantage of trading using opposite Arthur J and Aon PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arthur J 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 Arthur J Gallagher 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.