Correlation Between GM and Aon PLC
Can any of the company-specific risk be diversified away by investing in both GM 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 GM and Aon PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Aon PLC, you can compare the effects of market volatilities on GM 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 GM with a short position of Aon PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Aon PLC.
Diversification Opportunities for GM and Aon PLC
Poor diversification
The 3 months correlation between GM and Aon is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Aon PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aon PLC and GM 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 General Motors 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 GM i.e., GM and Aon PLC go up and down completely randomly.
Pair Corralation between GM and Aon PLC
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Aon PLC. In addition to that, GM is 2.22 times more volatile than Aon PLC. It trades about 0.0 of its total potential returns per unit of risk. Aon PLC is currently generating about 0.03 per unit of volatility. If you would invest 34,540 in Aon PLC on October 28, 2024 and sell it today you would earn a total of 170.00 from holding Aon PLC or generate 0.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.0% |
| Values | Daily Returns |
General Motors vs. Aon PLC
Performance |
| Timeline |
| General Motors |
| Aon PLC |
GM and Aon PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Aon PLC
The main advantage of trading using opposite GM and Aon PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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