Correlation Between Diamond Hill and Erie Indemnity

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

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

Diversification Opportunities for Diamond Hill and Erie Indemnity

-0.53

Correlation Coefficient

Diamond Hill  Erie Indemnity

Excellent diversification

The 3 months correlation between Diamond and Erie is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Hill Investment and Erie Indemnity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Erie Indemnity and Diamond Hill 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 Diamond Hill Investment 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 Diamond Hill i.e., Diamond Hill and Erie Indemnity go up and down completely randomly.

Pair Corralation between Diamond Hill and Erie Indemnity

Given the investment horizon of 90 days Diamond Hill Investment is expected to generate 0.91 times more return on investment than Erie Indemnity. However, Diamond Hill Investment is 1.1 times less risky than Erie Indemnity. It trades about 0.18 of its potential returns per unit of risk. Erie Indemnity is currently generating about -0.04 per unit of risk. If you would invest  15,367  in Diamond Hill Investment on August 31, 2024 and sell it today you would earn a total of  1,260  from holding Diamond Hill Investment or generate 8.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Diamond Hill Investment  vs.  Erie Indemnity

Diamond Hill Investment

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Hill Investment are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating forward indicators, Diamond Hill may actually be approaching a critical reversion point that can send shares even higher in December 2024.

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 latest conflicting performance, the Stock's forward indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Diamond Hill and Erie Indemnity

The main advantage of trading using opposite Diamond Hill and Erie Indemnity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diamond Hill 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 Diamond Hill Investment 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.