Correlation Between Aon PLC and Erie Indemnity

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

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

Diversification Opportunities for Aon PLC and Erie Indemnity

-0.54

Correlation Coefficient

Aon PLC  Erie Indemnity

Excellent diversification

The 3 months correlation between Aon and Erie is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Aon PLC and Erie Indemnity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Erie Indemnity and Aon PLC 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 Aon PLC are associated (or correlated) with Erie Indemnity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Erie Indemnity has no effect on the direction of Aon PLC i.e., Aon PLC and Erie Indemnity go up and down completely randomly.

Pair Corralation between Aon PLC and Erie Indemnity

Considering the 90-day investment horizon Aon PLC is expected to generate 0.52 times more return on investment than Erie Indemnity. However, Aon PLC is 1.91 times less risky than Erie Indemnity. It trades about 0.24 of its potential returns per unit of risk. Erie Indemnity is currently generating about -0.1 per unit of risk. If you would invest  33,144  in Aon PLC on August 16, 2024 and sell it today you would earn a total of  5,548  from holding Aon PLC or generate 16.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Aon PLC  vs.  Erie Indemnity

Aon PLC

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aon PLC are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Aon PLC displayed solid returns over the last few months and may actually be approaching a breakup point.

Erie Indemnity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Erie Indemnity has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's forward indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Aon PLC and Erie Indemnity

The main advantage of trading using opposite Aon PLC and Erie Indemnity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aon PLC position performs unexpectedly, Erie Indemnity 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 Erie Indemnity will offset losses from the drop in Erie Indemnity's long position.

The idea behind Aon PLC and Erie Indemnity 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.