Correlation Between Fanhua and Willis Towers

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

By analyzing existing cross correlation between Fanhua Inc and Willis Towers Watson, you can compare the effects of market volatilities on Fanhua and Willis Towers 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 Fanhua with a short position of Willis Towers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fanhua and Willis Towers.

Diversification Opportunities for Fanhua and Willis Towers

-0.18

Correlation Coefficient

Fanhua  Willis Towers

Good diversification

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

Pair Corralation between Fanhua and Willis Towers

Given the investment horizon of 90 days Fanhua Inc is expected to under-perform the Willis Towers. In addition to that, Fanhua is 4.84 times more volatile than Willis Towers Watson. It trades about -0.01 of its total potential returns per unit of risk. Willis Towers Watson is currently generating about 0.14 per unit of volatility. If you would invest  26,131  in Willis Towers Watson on September 30, 2024 and sell it today you would earn a total of  5,500  from holding Willis Towers Watson or generate 21.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	64.29%
Values	Daily Returns

Fanhua Inc  vs.  Willis Towers Watson

Fanhua Inc

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Fanhua Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly unsteady basic indicators, Fanhua demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Willis Towers Watson

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Willis Towers Watson are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Willis Towers may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Fanhua and Willis Towers

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

The idea behind Fanhua Inc and Willis Towers Watson 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.