Correlation Between Aon PLC and Enact Holdings

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

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

Diversification Opportunities for Aon PLC and Enact Holdings

0.57

Correlation Coefficient

Aon PLC  Enact Holdings

Very weak diversification

The 3 months correlation between Aon and Enact is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Aon PLC and Enact Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enact Holdings 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 Enact Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enact Holdings has no effect on the direction of Aon PLC i.e., Aon PLC and Enact Holdings go up and down completely randomly.

Pair Corralation between Aon PLC and Enact Holdings

Considering the 90-day investment horizon Aon PLC is expected to under-perform the Enact Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Aon PLC is 1.1 times less risky than Enact Holdings. The stock trades about -0.01 of its potential returns per unit of risk. The Enact Holdings is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,282  in Enact Holdings on January 20, 2024 and sell it today you would earn a total of  666.00  from holding Enact Holdings or generate 29.18% return on investment over 90 days.

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

Aon PLC  vs.  Enact Holdings

Aon PLC

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Aon PLC are ranked lower than 1 (%) 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.

Enact Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Enact Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, Enact Holdings is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Aon PLC and Enact Holdings

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

The idea behind Aon PLC and Enact Holdings 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.