Correlation Between Baldwin Insurance and Erie Indemnity

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

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

Diversification Opportunities for Baldwin Insurance and Erie Indemnity

0.68

Correlation Coefficient

Baldwin Insurance  Erie Indemnity

Poor diversification

The 3 months correlation between Baldwin and Erie is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding The Baldwin Insurance and Erie Indemnity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Erie Indemnity and Baldwin 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 The Baldwin Insurance are associated (or correlated) with Erie Indemnity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Erie Indemnity has no effect on the direction of Baldwin Insurance i.e., Baldwin Insurance and Erie Indemnity go up and down completely randomly.

Pair Corralation between Baldwin Insurance and Erie Indemnity

Given the investment horizon of 90 days The Baldwin Insurance is expected to under-perform the Erie Indemnity. In addition to that, Baldwin Insurance is 2.05 times more volatile than Erie Indemnity. It trades about -0.2 of its total potential returns per unit of risk. Erie Indemnity is currently generating about 0.07 per unit of volatility. If you would invest  41,263  in Erie Indemnity on September 19, 2024 and sell it today you would earn a total of  787.00  from holding Erie Indemnity or generate 1.91% return on investment over 90 days.

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

The Baldwin Insurance  vs.  Erie Indemnity

Baldwin Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Baldwin Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Erie Indemnity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Erie Indemnity has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's forward indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Baldwin Insurance and Erie Indemnity

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

The idea behind The Baldwin Insurance and Erie Indemnity 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.