Correlation Between China Communications and Aon PLC

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

Diversification Opportunities for China Communications and Aon PLC

-0.34
  Correlation Coefficient

Very good diversification

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

Pair Corralation between China Communications and Aon PLC

Assuming the 90 days horizon China Communications Services is expected to generate 1.77 times more return on investment than Aon PLC. However, China Communications is 1.77 times more volatile than Aon PLC. It trades about 0.01 of its potential returns per unit of risk. Aon PLC is currently generating about -0.02 per unit of risk. If you would invest  51.00  in China Communications Services on October 12, 2024 and sell it today you would earn a total of  0.00  from holding China Communications Services or generate 0.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

China Communications Services  vs.  Aon PLC

 Performance 
       Timeline  
China Communications 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Weak
Over the last 90 days China Communications Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, China Communications is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.
Aon PLC 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Aon PLC are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Aon PLC is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

China Communications and Aon PLC Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with China Communications and Aon PLC

The main advantage of trading using opposite China Communications and Aon PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Communications position performs unexpectedly, Aon PLC 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 Aon PLC will offset losses from the drop in Aon PLC's long position.
The idea behind China Communications Services and Aon PLC 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.

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