Correlation Between Ford and Aon PLC
Can any of the company-specific risk be diversified away by investing in both Ford 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 Ford and Aon PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Aon PLC, you can compare the effects of market volatilities on Ford 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 Ford with a short position of Aon PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Aon PLC.
Diversification Opportunities for Ford and Aon PLC
Poor diversification
The 3 months correlation between Ford and Aon is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Aon PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aon PLC and Ford 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 Ford Motor 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 Ford i.e., Ford and Aon PLC go up and down completely randomly.
Pair Corralation between Ford and Aon PLC
Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.55 times more return on investment than Aon PLC. However, Ford is 1.55 times more volatile than Aon PLC. It trades about 0.04 of its potential returns per unit of risk. Aon PLC is currently generating about 0.03 per unit of risk. If you would invest 1,003 in Ford Motor on October 28, 2024 and sell it today you would earn a total of 9.00 from holding Ford Motor or generate 0.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.0% |
| Values | Daily Returns |
Ford Motor vs. Aon PLC
Performance |
| Timeline |
| Ford Motor |
| Aon PLC |
Ford and Aon PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Aon PLC
The main advantage of trading using opposite Ford and Aon PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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 Ford Motor 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.| 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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