Correlation Between Aon PLC and Columbia Sportswear

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

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

Diversification Opportunities for Aon PLC and Columbia Sportswear

0.6

Correlation Coefficient

Aon PLC  Columbia Sportswear

Poor diversification

The 3 months correlation between Aon and Columbia is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Aon PLC and Columbia Sportswear in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Sportswear 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 Columbia Sportswear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Sportswear has no effect on the direction of Aon PLC i.e., Aon PLC and Columbia Sportswear go up and down completely randomly.

Pair Corralation between Aon PLC and Columbia Sportswear

Assuming the 90 days horizon Aon PLC is expected to under-perform the Columbia Sportswear. But the stock apears to be less risky and, when comparing its historical volatility, Aon PLC is 1.36 times less risky than Columbia Sportswear. The stock trades about -0.4 of its potential returns per unit of risk. The Columbia Sportswear is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  8,350  in Columbia Sportswear on October 4, 2024 and sell it today you would lose (200.00) from holding Columbia Sportswear or give up 2.4% of portfolio value over 90 days.

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

Aon PLC  vs.  Columbia Sportswear

Aon PLC

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aon PLC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Aon PLC may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Columbia Sportswear

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Columbia Sportswear are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Columbia Sportswear reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aon PLC and Columbia Sportswear

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

The idea behind Aon PLC and Columbia Sportswear 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.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.