Correlation Between Hexcel and Aon PLC

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

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

Diversification Opportunities for Hexcel and Aon PLC

0.61

Correlation Coefficient

Hexcel  Aon PLC

Poor diversification

The 3 months correlation between Hexcel and Aon is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Hexcel and Aon PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aon PLC and Hexcel 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 Hexcel 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 Hexcel i.e., Hexcel and Aon PLC go up and down completely randomly.

Pair Corralation between Hexcel and Aon PLC

Assuming the 90 days horizon Hexcel is expected to generate 1.62 times more return on investment than Aon PLC. However, Hexcel is 1.62 times more volatile than Aon PLC. It trades about 0.03 of its potential returns per unit of risk. Aon PLC is currently generating about -0.01 per unit of risk. If you would invest  5,834  in Hexcel on September 27, 2024 and sell it today you would earn a total of  116.00  from holding Hexcel or generate 1.99% return on investment over 90 days.

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

Hexcel  vs.  Aon PLC

Hexcel

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hexcel are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Hexcel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Aon PLC

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aon PLC are ranked lower than 10 (%) 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 January 2025.

Pair Trading with Hexcel and Aon PLC

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

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.