Correlation Between Aon PLC and Baldwin Insurance

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

By analyzing existing cross correlation between Aon PLC and The Baldwin Insurance, you can compare the effects of market volatilities on Aon PLC and Baldwin Insurance 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 Baldwin Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aon PLC and Baldwin Insurance.

Diversification Opportunities for Aon PLC and Baldwin Insurance

-0.34

Correlation Coefficient

Aon PLC  Baldwin Insurance

Very good diversification

The 3 months correlation between Aon and Baldwin is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Aon PLC and The Baldwin Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baldwin Insurance 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 Baldwin Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baldwin Insurance has no effect on the direction of Aon PLC i.e., Aon PLC and Baldwin Insurance go up and down completely randomly.

Pair Corralation between Aon PLC and Baldwin Insurance

Considering the 90-day investment horizon Aon PLC is expected to generate 0.37 times more return on investment than Baldwin Insurance. However, Aon PLC is 2.68 times less risky than Baldwin Insurance. It trades about 0.05 of its potential returns per unit of risk. The Baldwin Insurance is currently generating about -0.1 per unit of risk. If you would invest  34,639  in Aon PLC on September 20, 2024 and sell it today you would earn a total of  1,249  from holding Aon PLC or generate 3.61% 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.  The Baldwin Insurance

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

Baldwin Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Baldwin Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Aon PLC and Baldwin Insurance

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

The idea behind Aon PLC and The Baldwin Insurance 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.