Correlation Between Marsh McLennan and Arthur J

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

By analyzing existing cross correlation between Marsh McLennan Companies and Arthur J Gallagher, you can compare the effects of market volatilities on Marsh McLennan and Arthur J 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 Marsh McLennan with a short position of Arthur J. Check out your portfolio center. Please also check ongoing floating volatility patterns of Marsh McLennan and Arthur J.

Diversification Opportunities for Marsh McLennan and Arthur J

0.88

Correlation Coefficient

Marsh McLennan  Arthur J

Very poor diversification

The 3 months correlation between Marsh and Arthur is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Marsh McLennan Companies and Arthur J Gallagher in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arthur J Gallagher and Marsh McLennan 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 Marsh McLennan Companies are associated (or correlated) with Arthur J. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arthur J Gallagher has no effect on the direction of Marsh McLennan i.e., Marsh McLennan and Arthur J go up and down completely randomly.

Pair Corralation between Marsh McLennan and Arthur J

Assuming the 90 days horizon Marsh McLennan Companies is expected to under-perform the Arthur J. But the stock apears to be less risky and, when comparing its historical volatility, Marsh McLennan Companies is 1.35 times less risky than Arthur J. The stock trades about -0.02 of its potential returns per unit of risk. The Arthur J Gallagher is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  26,555  in Arthur J Gallagher on October 15, 2024 and sell it today you would earn a total of  1,015  from holding Arthur J Gallagher or generate 3.82% return on investment over 90 days.

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

Marsh McLennan Companies  vs.  Arthur J Gallagher

Marsh McLennan Companies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Marsh McLennan Companies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Marsh McLennan is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Arthur J Gallagher

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Arthur J Gallagher are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Arthur J is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Marsh McLennan and Arthur J

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

The idea behind Marsh McLennan Companies and Arthur J Gallagher 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.