Correlation Between Dow Jones and Aon PLC
Can any of the company-specific risk be diversified away by investing in both Dow Jones 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 Dow Jones and Aon PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Aon PLC, you can compare the effects of market volatilities on Dow Jones 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 Dow Jones with a short position of Aon PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Aon PLC.
Diversification Opportunities for Dow Jones and Aon PLC
Poor diversification
The 3 months correlation between Dow and Aon is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Aon PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aon PLC and Dow Jones 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 Dow Jones Industrial 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 Dow Jones i.e., Dow Jones and Aon PLC go up and down completely randomly.
Pair Corralation between Dow Jones and Aon PLC
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.74 times more return on investment than Aon PLC. However, Dow Jones Industrial is 1.34 times less risky than Aon PLC. It trades about 0.22 of its potential returns per unit of risk. Aon PLC is currently generating about 0.03 per unit of risk. If you would invest 4,299,221 in Dow Jones Industrial on October 28, 2024 and sell it today you would earn a total of 143,204 from holding Dow Jones Industrial or generate 3.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Aon PLC
Performance |
| Timeline |
Dow Jones and Aon PLC Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Aon PLC
Pair trading matchups for Aon PLC
Pair Trading with Dow Jones and Aon PLC
The main advantage of trading using opposite Dow Jones and Aon PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones 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.| Dow Jones vs. Turning Point Brands | Dow Jones vs. Weyco Group | Dow Jones vs. Willamette Valley Vineyards | Dow Jones vs. Compania Cervecerias Unidas |
| Aon PLC vs. NIGHTINGALE HEALTH EO | Aon PLC vs. Phibro Animal Health | Aon PLC vs. HEALTHSTREAM | Aon PLC vs. Acadia Healthcare |
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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