Correlation Between London Stock and AIA Group

Can any of the company-specific risk be diversified away by investing in both London Stock and AIA Group 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 London Stock and AIA Group into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between London Stock Exchange and AIA Group Ltd, you can compare the effects of market volatilities on London Stock and AIA Group 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 London Stock with a short position of AIA Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of London Stock and AIA Group.

Diversification Opportunities for London Stock and AIA Group

-0.63

Correlation Coefficient

London Stock  AIA Group

Excellent diversification

The 3 months correlation between London and AIA is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding London Stock Exchange and AIA Group Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AIA Group and London Stock 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 London Stock Exchange are associated (or correlated) with AIA Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AIA Group has no effect on the direction of London Stock i.e., London Stock and AIA Group go up and down completely randomly.

Pair Corralation between London Stock and AIA Group

Assuming the 90 days horizon London Stock Exchange is expected to generate 0.44 times more return on investment than AIA Group. However, London Stock Exchange is 2.27 times less risky than AIA Group. It trades about 0.13 of its potential returns per unit of risk. AIA Group Ltd is currently generating about -0.02 per unit of risk. If you would invest  2,542  in London Stock Exchange on October 1, 2024 and sell it today you would earn a total of  1,064  from holding London Stock Exchange or generate 41.86% return on investment over 90 days.

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

London Stock Exchange  vs.  AIA Group Ltd

London Stock Exchange

Risk-Adjusted Performance

4 of 100

Insignificant

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

AIA Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AIA Group Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with London Stock and AIA Group

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

The idea behind London Stock Exchange and AIA Group Ltd 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.