Correlation Between Aon PLC and American Financial

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

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

Diversification Opportunities for Aon PLC and American Financial

-0.17

Correlation Coefficient

Aon PLC  American Financial

Good diversification

The 3 months correlation between Aon and American is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Aon PLC and American Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Financial and Aon PLC 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 Aon PLC are associated (or correlated) with American Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Financial has no effect on the direction of Aon PLC i.e., Aon PLC and American Financial go up and down completely randomly.

Pair Corralation between Aon PLC and American Financial

Considering the 90-day investment horizon Aon PLC is expected to generate 1.44 times more return on investment than American Financial. However, Aon PLC is 1.44 times more volatile than American Financial Group. It trades about 0.06 of its potential returns per unit of risk. American Financial Group is currently generating about -0.11 per unit of risk. 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

Aon PLC  vs.  American Financial Group

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.

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.

Pair Trading with Aon PLC and American Financial

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

The idea behind Aon PLC and American Financial Group 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.