Correlation Between Willis Towers and Fanhua

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

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

Diversification Opportunities for Willis Towers and Fanhua

-0.18

Correlation Coefficient

Willis Towers  Fanhua

Good diversification

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

Pair Corralation between Willis Towers and Fanhua

Considering the 90-day investment horizon Willis Towers Watson is expected to generate 0.21 times more return on investment than Fanhua. However, Willis Towers Watson is 4.84 times less risky than Fanhua. It trades about 0.14 of its potential returns per unit of risk. Fanhua Inc is currently generating about -0.01 per unit of risk. 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

Willis Towers Watson  vs.  Fanhua Inc

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.

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.

Pair Trading with Willis Towers and Fanhua

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

The idea behind Willis Towers Watson and Fanhua Inc 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.