Correlation Between Erie Indemnity and Arthur J

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

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

Diversification Opportunities for Erie Indemnity and Arthur J

-0.31

Correlation Coefficient

Erie Indemnity  Arthur J

Very good diversification

The 3 months correlation between Erie and Arthur is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Erie Indemnity 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 Erie Indemnity 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 Erie Indemnity 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 Erie Indemnity i.e., Erie Indemnity and Arthur J go up and down completely randomly.

Pair Corralation between Erie Indemnity and Arthur J

Given the investment horizon of 90 days Erie Indemnity is expected to generate 1.08 times less return on investment than Arthur J. In addition to that, Erie Indemnity is 1.61 times more volatile than Arthur J Gallagher. It trades about 0.09 of its total potential returns per unit of risk. Arthur J Gallagher is currently generating about 0.16 per unit of volatility. If you would invest  25,191  in Arthur J Gallagher on August 30, 2024 and sell it today you would earn a total of  6,325  from holding Arthur J Gallagher or generate 25.11% return on investment over 90 days.

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

Erie Indemnity  vs.  Arthur J Gallagher

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 December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Arthur J Gallagher

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Arthur J Gallagher are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating forward-looking indicators, Arthur J may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Erie Indemnity and Arthur J

The main advantage of trading using opposite Erie Indemnity and Arthur J positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Erie Indemnity 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 Erie Indemnity 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.