Correlation Between American Financial and Aon PLC

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

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

Diversification Opportunities for American Financial and Aon PLC

-0.17

Correlation Coefficient

American Financial  Aon PLC

Good diversification

The 3 months correlation between American and Aon is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding American Financial Group and Aon PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aon PLC and American Financial 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 American Financial Group 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 American Financial i.e., American Financial and Aon PLC go up and down completely randomly.

Pair Corralation between American Financial and Aon PLC

Given the investment horizon of 90 days American Financial Group is expected to under-perform the Aon PLC. But the stock apears to be less risky and, when comparing its historical volatility, American Financial Group is 1.44 times less risky than Aon PLC. The stock trades about -0.11 of its potential returns per unit of risk. The Aon PLC is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  34,703  in Aon PLC on September 27, 2024 and sell it today you would earn a total of  1,458  from holding Aon PLC or generate 4.2% return on investment over 90 days.

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

American Financial Group  vs.  Aon PLC

American Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, American Financial is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Aon PLC

Risk-Adjusted Performance

4 of 100

Insignificant

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 latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with American Financial and Aon PLC

The main advantage of trading using opposite American Financial and Aon PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Financial 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 American Financial Group 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.