Correlation Between Aspen Insurance and Relx PLC

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

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

Diversification Opportunities for Aspen Insurance and Relx PLC

-0.18

Correlation Coefficient

Aspen Insurance  Relx PLC

Good diversification

The 3 months correlation between Aspen and Relx is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Aspen Insurance Holdings and Relx PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Relx PLC ADR and Aspen Insurance 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 Aspen Insurance Holdings are associated (or correlated) with Relx PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Relx PLC ADR has no effect on the direction of Aspen Insurance i.e., Aspen Insurance and Relx PLC go up and down completely randomly.

Pair Corralation between Aspen Insurance and Relx PLC

Assuming the 90 days trading horizon Aspen Insurance Holdings is expected to generate 0.6 times more return on investment than Relx PLC. However, Aspen Insurance Holdings is 1.68 times less risky than Relx PLC. It trades about -0.16 of its potential returns per unit of risk. Relx PLC ADR is currently generating about -0.13 per unit of risk. If you would invest  2,088  in Aspen Insurance Holdings on November 29, 2024 and sell it today you would lose (58.00) from holding Aspen Insurance Holdings or give up 2.78% of portfolio value over 90 days.

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

Aspen Insurance Holdings  vs.  Relx PLC ADR

Aspen Insurance Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aspen Insurance Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Preferred Stock's essential indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Relx PLC ADR

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Relx PLC ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Relx PLC is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Aspen Insurance and Relx PLC

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

The idea behind Aspen Insurance Holdings and Relx PLC ADR 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.