Correlation Between Erie Indemnity and CorVel Corp

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

By analyzing existing cross correlation between Erie Indemnity and CorVel Corp, you can compare the effects of market volatilities on Erie Indemnity and CorVel Corp 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 CorVel Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Erie Indemnity and CorVel Corp.

Diversification Opportunities for Erie Indemnity and CorVel Corp

-0.53

Correlation Coefficient

Erie Indemnity  CorVel Corp

Excellent diversification

The 3 months correlation between Erie and CorVel is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Erie Indemnity and CorVel Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CorVel Corp 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 CorVel Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CorVel Corp has no effect on the direction of Erie Indemnity i.e., Erie Indemnity and CorVel Corp go up and down completely randomly.

Pair Corralation between Erie Indemnity and CorVel Corp

Given the investment horizon of 90 days Erie Indemnity is expected to under-perform the CorVel Corp. But the stock apears to be less risky and, when comparing its historical volatility, Erie Indemnity is 1.11 times less risky than CorVel Corp. The stock trades about -0.11 of its potential returns per unit of risk. The CorVel Corp is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  32,073  in CorVel Corp on August 30, 2024 and sell it today you would earn a total of  4,066  from holding CorVel Corp or generate 12.68% return on investment over 90 days.

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

Erie Indemnity  vs.  CorVel Corp

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.

CorVel Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CorVel Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, CorVel Corp disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Erie Indemnity and CorVel Corp

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

The idea behind Erie Indemnity and CorVel Corp 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.

Check out your portfolio center.

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 Bonds Directory module to find actively traded corporate debentures issued by US companies.