Correlation Between Aon PLC and Alphabet

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Can any of the company-specific risk be diversified away by investing in both Aon PLC and Alphabet 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 Alphabet into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aon PLC and Alphabet Inc Class C, you can compare the effects of market volatilities on Aon PLC and Alphabet 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 Alphabet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aon PLC and Alphabet.

Diversification Opportunities for Aon PLC and Alphabet

0.05
  Correlation Coefficient

Significant diversification

The 3 months correlation between Aon and Alphabet is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Aon PLC and Alphabet Inc Class C in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet Class C 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 Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet Class C has no effect on the direction of Aon PLC i.e., Aon PLC and Alphabet go up and down completely randomly.

Pair Corralation between Aon PLC and Alphabet

Considering the 90-day investment horizon Aon PLC is expected to generate 3.18 times less return on investment than Alphabet. But when comparing it to its historical volatility, Aon PLC is 1.55 times less risky than Alphabet. It trades about 0.02 of its potential returns per unit of risk. Alphabet Inc Class C is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  11,497  in Alphabet Inc Class C on January 19, 2024 and sell it today you would earn a total of  4,191  from holding Alphabet Inc Class C or generate 36.45% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Aon PLC  vs.  Alphabet Inc Class C

 Performance 
       Timeline  
Aon PLC 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Aon PLC has generated negative risk-adjusted returns adding no value to investors with long positions. 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.
Alphabet Class C 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Alphabet may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Aon PLC and Alphabet Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Aon PLC and Alphabet

The main advantage of trading using opposite Aon PLC and Alphabet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aon PLC position performs unexpectedly, Alphabet 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 Alphabet will offset losses from the drop in Alphabet's long position.
The idea behind Aon PLC and Alphabet Inc Class C 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.

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