Correlation Between Visa and Aon PLC

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

By analyzing existing cross correlation between Visa Class A and Aon PLC, you can compare the effects of market volatilities on Visa 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 Visa with a short position of Aon PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Aon PLC.

Diversification Opportunities for Visa and Aon PLC

0.69

Correlation Coefficient

Visa  Aon PLC

Poor diversification

The 3 months correlation between Visa and Aon is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Aon PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aon PLC and Visa 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 Visa Class A 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 Visa i.e., Visa and Aon PLC go up and down completely randomly.

Pair Corralation between Visa and Aon PLC

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.56 times more return on investment than Aon PLC. However, Visa Class A is 1.79 times less risky than Aon PLC. It trades about -0.13 of its potential returns per unit of risk. Aon PLC is currently generating about -0.2 per unit of risk. If you would invest  28,043  in Visa Class A on February 5, 2024 and sell it today you would lose (1,194) from holding Visa Class A or give up 4.26% of portfolio value over 90 days.

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

Visa Class A  vs.  Aon PLC

Visa Class A

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Visa Class A has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Visa is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Aon PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aon PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Aon PLC is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Visa and Aon PLC

The main advantage of trading using opposite Visa and Aon PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa 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 Visa Class A 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.

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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..